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too big to fail
Warren to Regulators: Enough With Mergers Making 'Too-Big-to-Fail' Banks Even Bigger
"The recent bank crisis underscores the urgency of strengthening the merger review process and reversing the dangerous trend of bank consolidation."
Jun 27, 2023
In the wake of three recent bank failures, U.S. Sen. Elizabeth Warren on Tuesday urged financial regulators to promote competition rather than further consolidation in the industry and improve merger guidelines.
The Massachusetts Democrat's call for action came in a letter to Assistant Attorney General Jonathan Kanter, Federal Deposit Investment Corporation (FDIC) Chairman Gruenberg, Acting Comptroller of the Currency Michael Hsu, Federal Reserve Vice Chair for Supervision Michael Barr, and Treasury Secretary Janet Yellen.
"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."
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Wall Street Had a Merry Christmas. The New Year's Still Up For Grabs.
Dec 26, 2014
The Banking Committee, and Fighting Wall Street (w/ Sen. Sherrod Brown)Subscribe to The Zero Hour with RJ Eskow for more: https://bit.ly/TheZeroHour If you liked this clip of The Zero Hour with RJ Eskow, ...
They're calling it a "Christmas gift" for Wall Street. Last week the Federal Reserve announced that it's giving U.S. banks yet another extension on the "Volcker Rule" provision in the Dodd-Frank financial reform bill. As a result of this latest decision, banks won't have to comply until mid-2017.
The Dodd-Frank bill was passed in 2010.
Banks wanted a delay because they claimed they needed the time to prepare. Does anybody really think the nation's largest and most powerful financial institutions need seven years to restructure the casino-like aspect of their operations? It would be easier to imagine them doing in seven days - at least if there were money to be made from it.
What's really going on? For one thing, every year that the rule is delayed is another year the banks can maximize their earnings. But the game may be even deeper than that. The Fed delay makes a kind of sense - if you believe Congress plans to revoke the Volcker Rule altogether.
The Ghost of Big-Bank Futures
It's almost as if Wall Street's been expecting a break all along - but then, maybe it has. After all, instead of shoring up Dodd-Frank by restoring Glass-Steagall and breaking up too-big-to-fail banks, lawmakers have looked the other way. The Fed and other regulators have routinely dragged their feet on the rule-making that accompanies a law like Dodd-Frank. The Justice Department has ignored overwhelming evidence of banker criminality and given a free pass to lawbreakers on Wall Street.
And this month Congress ran the same game it's used in the past: It attached a corporate-friendly provision to a "must pass" bill, using the implicit threat of a shutdown and the shallow reporting of a compliant news media to slip its machinations past the American people.
This time it was the "cromnibus" funding measure, and the corporate giveaway was the "Citigroup" amendment - literally written by lobbyists for that bank. The amendment revoked a provision removing taxpayer insurance protection from risky derivatives investments by large financial institutions. That provision, originally set to take effect in 2013, had been delayed until July of 2015. Now it won't take effect at all.
If you want a dark glimpse of the coming year for this holiday season, the "cronybus" deal points its bony finger toward 2015 like the Ghost of Christmas Future. Ask not for whom the bell tolls. It tolls for thee ... and thy economy.
Running Out the Clock
It's government of Wall Street, by Wall Street, and for Wall Street. The lesson of the "Citigroup amendment," which only benefited a handful of our largest banks, seems to be this: If the rule-making is delayed long enough, there's a good chance Congress will eventually repeal the rule altogether - that is, if it gets in the way of Wall Street's profits.
At the close of last year, Citigroup held $63.5 trillion in derivatives, and $62.3 trillion was protected by Federal insurance. That's "trillions," with a "t." And while the bank isn't on the hook for the full amount, you can believe that these bets involve enormous sums of money.
We're on the hook for those sums too - and now that's not going to change.
Whose Fed?
That gets us to the Fed's decision. The Volcker Rule was designed as a milder alternative to the Glass-Steagall protections that kept our banking system safe for nearly 75 years. It limits banks' ability to gamble on risky investment instruments like those which contributed to the financial crisis.
The "Citigroup" amendment showed us how likely the new, more Republican Congress is to roll back portions of the Dodd-Frank law - and how much cooperation it will receive from Wall Street Democrats when it does.
It's easy to be angry at the Fed, and it's often understandable. An institution created by the American people to serve the greater good has instead become enmeshed in the banking industry it was meant to regulate. (See "The People's Fed" for more.)
Nevertheless, although we are often ill-served by this public institution, in this case the blame may lie elsewhere. Even a relatively well-intentioned officer of the Federal Reserve might reasonably conclude that it would be disruptive to force banks to prepare for a rule that will never take effect.
And if there's one thing that Congress demonstrated this month, it's that it is ready, willing, and able to eliminate rules that displease Wall Street.
Pushback
When it comes to Wall Street reform, this month was bad news. But there were sprigs of green among December's funereal shades. A few feisty lawmakers fought back against the "cromnibus" deal. Sen. Elizabeth Warren (D-Mass.) led the charge in the Senate, slamming both Wall Street's Republican water-carriers and Citigroup's cronies in the Clinton and Obama administrations. On the House side, progressives found an ally in a reinvigorated Democratic leader Nancy Pelosi.
Sen. Bernie Sanders (I-Vt.) says he will introduce a resolution to break up the big banks. It's not likely to pass, but it's a start. Democrats who resist the Wall Street takeover may find some allies among the Republicans as well, where Sen. David Vitter (R-La.) and others have sometimes taking populist economic stands.
Sen. Sherrod Brown (D-Ohio) will become the ranking Democrat on the Senate Banking Committee (which also handles housing and urban affairs, two other sensitive financial areas). In the clip above, Sen. Brown told us that he plans to use this position to keep calling for more comprehensive Wall Street reform. Brown says he'll reach across the aisle for allies. He notes that some conservatives want Wall Street reform, but adds that even the most ardent among them are often seduced by its money when they come to Washington.
The senator also notes that, when it comes to "keeping Wall Street in check," his committee "didn't have a majority for that (even) when Democrats were in the majority." That's where the public comes in.
Whose 2015?
We live in a cash-driven political age. We won't get the reform we need if we rely on elected officials to enact it for us. That will take an independent movement that isn't beholden to any party or special interest. Building it will be a major challenge, and nobody else will do it for us.
It won't be easy. Banks are already gearing up for a "lobbying blitz" aimed at rolling back more of Dodd-Frank. The President is likely to renominate banker Antonio Weiss to a key economic position. Wall Streeters are likely to join with other wealthy interests in another attempt to cut Social Security, a move which could keep their tax bills low while bringing new investment income to their coffers.
There will be other economic battles. The President will be pushing for the Trans-Pacific Partnership, an onerous and destructive trade bill, and he'll be asking Congress to prevent debate on its controversial provisions by using a parliamentary trick known as "fast track." Congress will be fighting to give even more tax breaks to corporations and wealthy individuals, and to undermine even more employee protections for working Americans.
Some in Congress will make positive and even brave proposals - to break up the big banks, increase Social Security benefits, raise wages, and take other much-needed steps to repair our damaged economy. But, overall, our elected officials will only have as much courage as the public demands of them. It will take a reinvigorated movement, on the scale of the Occupy movement and the transformative movements that preceded it, to enact major populist reforms.
If you're looking for an easy political ride, 2015 isn't likely to be your favorite year. But if you're looking for political challenge and purpose, you'll find more than enough to engage you in the next twelve months. Happy holidays - and see you at the barricades.
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