Senator Elizabeth Warren Slams Treasury Secretary Yellen and Bank Regulator Hsu for “Courting Disaster” on Bank Mergers

By Pam Martens and Russ Martens: July 13, 2023 ~

Senator Elizabeth Warren Speaking at the July 12, 2023 Senate Hearing on Bank Mergers

Senator Elizabeth Warren Speaking at the July 12, 2023 Senate Hearing on Bank Mergers

Senator Elizabeth Warren is the Chair of the Senate Banking Committee’s Subcommittee on Economic Policy. She is also the most knowledgeable member of Congress when it comes to the mega banks on Wall Street and the most willing to hold them accountable. (See related articles below.)

Yesterday, Warren’s Subcommittee held a hearing on “Bank Mergers and the Economic Impacts of Consolidation.” The urgency of this hearing was heightened by the fact that almost two years after President Joe Biden signed an Executive Order urging members of his administration to take a more aggressive investigation into the harmful impacts of consolidation and monopoly power before approving more mergers in a number of industries, including banking, bank regulators signed off on one of the most egregious mergers of this century. Senator Warren explained it this way:

“When First Republic Bank collapsed in April, the bank was ultimately sold to the biggest bank in America, JP Morgan Chase. That sweetheart deal cost the Federal Deposit Insurance Fund $13 billion. Meanwhile, overnight, the country’s biggest bank got $200 billion bigger. And what happened to the regulators? The Acting Comptroller of the Currency, Michael Hsu, rubber stamped the deal in record time. When I asked Mr. Hsu at a hearing in May to explain how this merger was approved, he was unable to provide a clear answer.

“But the overall picture gets worse. Instead of inattentive regulators who don’t use their tools to block increasing consolidation, leaders within the Biden Administration seem to be inviting more mergers. In a May 2023 statement before the House Financial Services Committee, Acting Comptroller Hsu reassured banks that the agency would be “open-minded” while considering merger proposals….

“Treasury Secretary Yellen recently warned that the banking ‘turmoil’ from the collapse of Silicon Valley Bank, Signature Bank, and First Republic might lead to more mergers and that regulators would be – quote – ‘open to’ them. Then the New York Times also reported that Secretary Yellen privately told big banks that she would, and I quote, ‘welcome more mergers.’ ”

At the hearing yesterday, Warren called this lax position by regulators to be “stunningly wrongheaded” and “courting disaster.”

President Biden has only himself to blame for Yellen defying his Executive Order. He put an individual in place as Treasury Secretary – who also has enormous powers when it comes to Wall Street – when there was plenty of evidence in the public domain that the millions of dollars in speaking fees that Yellen had collected from the mega banks on Wall Street would make her a fatally compromised voice in his administration. As the astute Jesse Eisinger Tweeted at the time of the revelations about Yellen, “Deeply troubling two-fisted money grab from banks by Janet Yellen. This is corruption, but isn’t called that because it’s so quotidian.” Eisinger also noted: “Sure, Yellen might think she can make independent decisions once in office. But how arrogant is it to imagine that money corrupts everyone but you?” (See our report: Janet Yellen’s Cash Haul of $7 Million Is Just the Tip of the Iceberg; She Failed to Report Her Wall Street Speaking Fees from JPMorgan and Others in 2018.)

The willingness of bank regulators to fast-track the sale of the collapsed First Republic Bank to JPMorgan Chase wasn’t just an affront to Biden’s Executive Order. It was a direct threat to the safety and soundness of the U.S. banking system, which is, in turn, a direct threat to the national security of the United States. JPMorgan Chase isn’t just the most unprosecuted criminal in the history of banking – admitting to five separate criminal felony counts since 2014 and getting non-prosecution agreements from the U.S. Department of Justice – it is, officially, the riskiest bank in the United States as measured by its own regulators.

There were three witnesses at yesterday’s Subcommittee hearing: Morgan Harper, Director of Policy and Advocacy at the American Economic Liberties Project; Michael Faulkender, Dean’s Professor of Finance and Chief Economist at the University of Maryland and America First Policy Institute; and Alexa Philo, Senior Policy Analyst at the nonprofit watchdog, Americans for Financial Reform.

Morgan Harper Speaking at a Senate Hearing on Bank Mergers on July 12, 2023

Morgan Harper Speaking at a Senate Hearing on Bank Mergers on July 12, 2023

Harper made the following key points:

“The harms of systemic monopolization in America are vast: higher consumer prices, fewer small businesses, depressed levels of entrepreneurship and business dynamism, more fragile supply chains and shortages, markedly lower wages for workers (particularly lower-income workers), regional inequality, worse outcomes for patients as a result of hospital mergers and private equity roll-ups, reduced military preparedness resulting from extreme concentration in the defense industry, the destruction of a sustainable revenue model for local news because of Google and Facebook’s monopolization of digital advertising, and I could go on. The point is that monopoly power is one of the main impediments to broad-based social, economic, and racial justice in America.”

In terms of the impact of consolidation in the banking sector, Harper offered this:

“In 1990, there were 15,000 banks in America. Today, there are hardly more than 4,000. The six largest banks – JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley – control more assets ($13.6 trillion) than all others combined. The largest four ‘trillionaire’ banks, which controlled under 10 percent of the nation’s deposits in 1995, accounted for 36 percent in 2020. Meanwhile, the share of assets held by smaller banks with total assets under $1 billion has dropped from 25 percent in 1994 to just 6 percent in 2019, likely even smaller now. Today, more than three-quarters of the United States’ local banking markets are considered uncompetitive, even more pronounced in rural areas, where nearly 90 percent of local markets are considered highly concentrated.”

Michael Faulkender, Dean's Professor of Finance and Chief Economist at the University of Maryland and America First Policy Institute

Michael Faulkender

Faulkender addressed how this consolidation harms lending to small businesses, stating:

“Indispensable to meeting the needs of US small businesses has been the availability of credit from local and regional lenders. According to a recent Federal Reserve report, ‘large banks tend to be proportionately less committed than smaller banks to small business lending.’ Smaller banks with less than a billion dollars in assets on average had loan portfolios in June 2021 that were more than 13 percent comprised of small business loans. That figure was just 6 percent for the largest banks.”

Philo addressed the too-big-to-fail and too-big-to-manage issues that are inherent in the mega bank model, writing in her prepared remarks:

Alexa Philo

Alexa Philo

“…Too-big-to-fail risk was amplified with JPMorgan Chase’s acquisition of First Republic, which inflated the size of JPMorgan, already the nation’s largest bank, by $200 billion. Financial analysts hailed it as the firm’s ‘best deal in decades,’ estimating the deal could hand JPMorgan another $1 billion annually. While the transaction received regulatory approval from the FDIC – required by law to accept the highest bid and lowest cost to the Deposit Insurance Fund – it also was approved by the OCC [Office of the Comptroller of the Currency], which is legally obligated to consider whether the proposed transaction poses a risk to the stability of the financial system due to an increase in size of the combining institutions.

“As a result, JPMorgan’s acquisition of First Republic Bank was approved without reckoning with too-big-to-fail and ‘too-big-to-manage’ risks to the financial system and the public. The American public would be better served by the agencies evaluating ‘emergency’ sales through a lens broader than just the least cost to the insurance fund, including the resulting effects on financial stability, ability to effectively manage the combined entity, anti-competitive impacts, and other negative economic consequences not beneficial to communities served or the economy. The least cost calculation criteria should also be more transparent.”

Related Articles:

The Senate Banking Committee Has Subpoena Power; So Why Has Senator Elizabeth Warren Been Left to Investigate on Her Own?

Elizabeth Warren Opens Pandora’s Box With Midnight Letters to DOJ and FBI

Elizabeth Warren Demands Repo Loan Answers as NY Fed Repo Data Disappears

Elizabeth Warren Steps Into the F.I.R.E. of Wall Street Corruption

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