During a meeting with the CEOs of major banks, Treasury Secretary Janet Yellen stated that additional bank mergers might be necessary to navigate the ongoing crisis in the industry, according to sources familiar with the matter. This signals a shift in the Biden administration's stance on bank mergers, despite progressive criticism and the administration's scrutiny of corporate concentration.
The banking industry is currently facing its most severe crisis since 2008, with bank failures, plummeting stock prices, and concerns about the business models of regional and mid-size banks. Regulators, in an effort to prevent destabilizing bank failures, favor corporate mergers where stronger banks acquire weaker ones.
Ed Mills, a Washington policy analyst at Raymond James, stated, "Consolidation is inevitable. The progressive backlash is the Catch-22."
Yellen met with JPMorgan Chase CEO Jamie Dimon, Citigroup CEO Jane Fraser, and other members of the Bank Policy Institute to discuss these issues. While the official readout from the Treasury Department did not mention bank mergers, sources indicate that the topic was indeed discussed during the meeting.
Yellen's comments align with previous remarks made by US regulators, who have suggested that bank mergers may be necessary in the current environment. Yellen also expressed confidence in the strength of the nation's diverse banking system, which encompasses institutions of various sizes.
Despite the Biden administration's efforts to crack down on corporate concentration, regulators recently approved JPMorgan Chase's acquisition of most of First Republic, the second-largest bank failure in US history. This move drew criticism from progressives, who argued that it allows JPMorgan Chase, a previously under-regulated bank, to become even larger.
Yellen acknowledged the potential for consolidation in the regional and mid-size banking sector during an interview with Reuters, stating that regulators would be open to such mergers. Michael Hsu, the acting comptroller of the currency, also expressed the willingness of his agency to consider bank mergers promptly.
Investors have been hesitant to engage with the regional banking sector due to concerns about increased regulation, rising deposit costs, and recent bank failures that resulted in shareholders losing their investments. The unpredictability surrounding these events has made investors cautious.
