too big to fail

"Earlier this year, a series of fatal errors—poor risk management by bank executives, corporate greed, deregulation, and the lack of sufficient federal supervision—led to the implosion of Silicon Valley Bank, which was shortly followed by the collapses of Signature Bank, and First Republic," she wrote. "Unfortunately, Secretary Yellen and Acting Comptroller Hsu have recently indicated that they appear to be taking the wrong lessons from these bank failures, suggesting that they would like to see more bank consolidation."

"The number of commercial banks in the U.S. has fallen by 70% over the past two decades, and the trend is accelerating."

The letter references reporting from Politico's "Morning Money" (MM) earlier this month. As the outlet detailed:

A top lobbyist for big U.S. banks is hearing more openness from government officials on the topic of mergers for midsize lenders in the wake of banking stress earlier this year. But the industry wants more than just talk.

"There's been something of a sea change in Washington over the last two months," Bank Policy Institute CEO Greg Baer told MM in an interview this week. "I do think, at the highest level, and at the highest levels, there is a recognition that midsize banks need to be allowed to merge and be acquired potentially by larger banks."

"The problem, though, is that's easy to say," he added. "But you have to convince banks that in fact, you mean what you say."

Warren argued to Yellen and the letter's other recipients that "while your agencies are working to update the guidelines under which you evaluate bank mergers, which were last published in 1995, the recent bank crisis underscores the urgency of strengthening the merger review process and reversing the dangerous trend of bank consolidation."

"I have long been concerned with bank concentration and your agencies' failures to curb the proliferation of banks that are 'too big to fail,'" the senator acknowledged, noting that none of the federal banking agencies have formally denied a bank merger application in over 15 years, and the U.S. Department of Justice has not challenged one in more than 35 years.

"Meanwhile, the number of commercial banks in the U.S. has fallen by 70% over the past two decades, and the trend is accelerating with $77 billion in bank mergers and acquisitions in 2021 alone—the 'highest yearly deal volume since the 2008 financial crisis,'" she continued. Such consolidation not only harms consumers and small businesses but also heightens "systemic risk in the financial system, reducing the number of smaller banks and creating even more too-big-to-fail banks."

After highlighting President Joe Biden's 2021 executive order directing financial regulators and the attorney general to review and strengthen bank merger oversight, the senator asserted that allowing additional industry consolidation "would be a dereliction of your responsibilities" as well as a betrayal of the White House's "commitment to promoting competition in the economy."

"Shoring up our banking system will require stronger regulation and more vigorous oversight of big banks to keep them from failing in the first place," Warren contended, "and stronger merger guidelines and rules that significantly check consolidation and limit the size and number of too-big-to-fail banks that put taxpayers at risk."

One of the senator's proposed solutions is the Bank Merger Review Modernization Act, which would limit consolidation in the sector with various policies, including a requirement that mergers are in the public interest.
 

Her new letter concludes with a series of questions about ongoing work to update bank merger review guidelines—including when those guidelines will be released. She requested responses by July 10.

Warren has recently pressed financial regulators not only via letters but also at congressional hearings—including in May, when she grilled Hsu about the sale of First Republic to JPMorgan Chase, which made the nation's biggest bank even bigger. During that event, the senator declared that "the single biggest threat to the U.S. banking system is concentration."