Yellen Tells CEOs To Prepare For More Bank Mergers in 2023
Treasury Secretary Janet Yellen said there might potentially be more bank mergers this year, due to higher interest rates and the recent regional bank turmoil, which is making it more expensive for them to keep depositors, according to The Wall Street Journal.Ā
Speaking in Paris, Yellen reiterated her view that banks are paying more on savings accounts due to higher rates, which is putting a dent in their profitability, and could trigger more bank failures, according to The Wall Street Journal.
Yellen added that weaker second-quarter earnings could put pressure on stock prices, also potentially triggering more bank mergers.
āI donāt think itās a huge threat to the sector, but there will probably be banks that end up wanting to merge,ā Yellen said in an interview in Paris, according to The Wall Street Journal.
There were three bank failures so far this year, which prompted fears of contagion in the banking system. In March, the quick collapse of Silicon Valley Bank and Signature Bank prompted regulators to take measures to avoid more damage, stem the outflow of depositors and reassure jittery consumers. And on May 1st, JPMorgan Chase acquired most of the assets and āassumed the deposits and certain other liabilitiesā of First Republic Bank, following the bankās seizure by the Federal Deposit Insurance Corporation (FDIC) and ensuing āhighly competitive bidding process.
In terms of what more bank failures mean to consumers, one direct consequence is that credit is much tighter.
āWith inflation falling and the Federal Reserve projecting two additional 25 basis point rate hikes this year, credit will likely get a lot tighter,ā said William J. Luther, director of the American Institute for Economic Researchās Sound Money Project. Luther explained that higher rates would pressure banks to pay their depositors more despite not earning any more on the bonds and loans they already hold.
āIf large depositors expect this pressure to result in large losses, they will reduce their deposit holdings at the bank. That could cause the bank to fail, prompting its merger with other banks,ā he added. āAt this point, Yellen is merely sounding the alarm so that banks take the necessary precautions for the months ahead. Most banks are reasonably well-positioned at the moment. But excessive rate hikesāwhich the Fed seems intent on deliveringācould change that.ā
In Paris, Yellen said more consolidation in the banking industry could be healthy, noting, however: āWe certainly donāt want overconcentration and weāre pro-competition, but that doesnāt mean noā mergers, according to The Wall Street Journal. āWe have more banks, relatively speaking, in the United States than almost any country of which Iām aware.ā
Following her remarks, Senator Elizabeth Warren (D-Mass.) wrote a letter addressed to the Secretary and Acting Comptroller of the Currency, Michael Hsu, in which she noted that additional bank mergers would be detrimental to consumers, adding they were taking āexactly the wrong approach.ā
āThis consolidation hurts consumers. Consolidation causes āhigher prices and more fees, lower deposit rates, less access to credit, bank branch closures, and job cuts,ā she wrote in the June 27 letter.
āAllowing additional bank consolidation would be a dereliction of your responsibilities, hurting American consumers and small businesses, betraying President Bidenās commitment to promoting competition in the economy, and threatening the stability of the financial system and the economy,ā Warren added.
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