New York (CNN) During a Thursday meeting with the chief executives of major banks, Treasury Secretary Janet Yellen told the executives that more bank mergers may be necessary as the industry continues to navigate the crisis, two people familiar with the matter told CNN.
The comments from Yellen provide further evidence that Biden officials are beginning to warm to the idea of a bank merger despite concerns from progressives and the administration’s own scrutiny of corporate concentration.
The worst banking crisis since 2008, marked by a series of bank failures, falling stock prices and concerns about the business model of regional and mid-sized banks, has prompted a regulatory rethink. Regulators naturally prefer corporate mergers, where strong banks take control of weaker ones, over destabilizing bank failures.
“Consolidation is inevitable,” said Ed Mills, Washington policy analyst at Raymond James. “The progressive reaction is Catch-22.”
Against that backdrop, Yellen met in Washington Thursday with JPMorgan Chase CEO Jamie Dimon, Citigroup CEO Jane Fraser, and other members of the Bank Policy Institute’s board of directors.
The statement provided by the Treasury Department following that meeting noted that Yellen had addressed the banking pressure, reaffirming “the strength and integrity of the American banking system” and thanking the bankers for their “leadership and support.” However, this reading did not mention the discussion of bank mergers.
However, sources told CNN that bank mergers were discussed during Yellen’s meeting with the bank’s CEOs.
A person familiar with the matter said Yellen echoed comments from US regulators who said there could be bank mergers in the current environment.
Yellen also expressed her confidence that the country’s diversified banking system, which includes institutions of various sizes, is on a solid foundation in the wake of recent events, according to the source.
The Biden administration has sought to crack down on corporate concentration, as regulators have moved to block a JetBlue takeover of Spirit, Microsoft’s $69 billion acquisition of video game publisher Activision Blizzard, and other major mergers.
However, earlier this month, regulators allowed JPMorgan Chase, the country’s largest bank, to buy most of First Republic, the second largest bank to fail in US history. The deal, which followed a competitive bidding process and aimed to stabilize the regime, drew sharp criticism from some progressives.
“What happened here is one bank was heavily regulated and started to fall apart, and the federal government helped JPMorgan Chase get bigger,” Massachusetts Democratic Senator Elizabeth Warren told CNN. “It may look good today while everything is flying high, but in the end if one of those giant banks, JPMorgan Chase, starts to falter, it’s the American taxpayers who are going to be at stake.”
Nobody wants to be a hero.
During an interview with Reuters this week, Yellen said some degree of consolidation in the regional and medium-sized banking sector may be taking place.
“This could be an environment where we’ll see more mergers, you know, that’s something I think regulators would be open to, if it happens,” Yellen told Reuters.
Acting Currency Comptroller Michael Hsu told lawmakers earlier this week that his agency would be willing to quickly look into bank mergers.
Hsu told the Senate Banking Committee that the Office of the Comptroller of the Currency is “committed to being open-minded when considering merger proposals and acting in a timely manner on applications.”
Investors have been turning away from the regional banking sector because of concerns about potential new regulations, higher deposit costs and the fact that shareholders have been wiped out after recent bank failures, said Raymond James analyst Mills.
“Nobody wants to be a hero,” said Mills. “With little or no warning, some of the banks went from some of the best-watched lenders in the industry to zeroes. That spooked investors a bit.”
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