Elizabeth Warren to Janet Yellen: You're wrong on bank mergers

Sen. Elizabeth Warren has a new warning for Treasury Secretary Janet Yellen: Stop saying it's OK for banks to get bigger.

The Massachusetts Democrat in a letter Tuesday to Yellen, top bank regulators and the Justice Department called out the Treasury secretary and Acting Comptroller of the Currency Michael Hsu for recent comments that signaled an openness to further bank consolidation amid industry weakness exposed by the meltdowns of Silicon Valley Bank and other lenders.

Yellen has said that more mergers could be healthy, while Hsu, who regulates the largest U.S. lenders, has told Congress in recent weeks that his agency is "committed to being open-minded" on the issue.

Warren said Yellen and Hsu appear to be taking "the wrong lessons" from the failures of SVB, Signature Bank and First Republic.

"Allowing additional bank consolidation would be a dereliction of your responsibilities, hurting American consumers and small businesses, betraying President Biden’s commitment to promoting competition in the economy, and threatening the stability of the financial system and the economy," Warren wrote.

Warren's rebuke revealed a major new rift with top Biden administration officials over economic policy, in what will likely be just the beginning of a push by her to curtail mergers involving large banks.

At the heart of the conflict is a clash between a broader corporate merger crackdown sought by Biden and the view held by some administration officials that more bank mergers could help shore up the U.S. financial system post-SVB. U.S. officials, for example, blessed JPMorgan Chase's takeover of the teetering First Republic last month.

Yellen, who played a lead role in policing the banking industry when she was Federal Reserve chair, has been the most prominent Biden administration voice signaling an openness to more bank M&A. Bank lobbyists, who want the administration to loosen up on mergers, have noted "something of a sea change." Bank regulators and the Justice Department — not Yellen — have the power to reject proposed bank mergers.

“We certainly don’t want overconcentration and we’re pro-competition, but that doesn’t mean no” mergers, Yellen said in a Wall Street Journal interview published Friday. “We have more banks, relatively speaking, in the United States than almost any country of which I’m aware.”

In Warren's view, "This would represent exactly the wrong approach."

Warren in her letter Tuesday — which also went to FDIC Chair Martin Gruenberg and Fed Vice Chair for Supervision Michael Barr — pressed the agencies for an update on merger review guidelines sought by Biden in a 2021 executive order.

She also took aim at Justice Department assistant attorney general for antitrust Jonathan Kanter, who last week announced steps that officials are taking to expand scrutiny of bank mergers. Kanter has been leading the Biden administration's crackdown on mergers across industries.

Warren pressed Kanter on why DOJ will move away from forcing banks to divest branches as a condition for merger approval and defer to banking agencies to determine remedies to address competition problems.

Warren said shoring up the banking system will require "stronger regulation and more vigorous oversight of big banks to keep them from failing in the first place," as well as stronger merger guidelines that limit the size and number of too-big-to-fail banks.

"To that end," Warren said, "I urge you to accelerate your work to update the bank merger review guidelines to put an end to regulators’ practice of rubber stamping merger applications and strengthen the standards under which mergers are considered."