June 21, 2023

At Hearing, Warren Calls on Fed Nominees to Implement Strong Bank Merger Review Guidelines and Reinstate Tough Rules for Big Banks

Warren Also Announces Another Historic Ethics Pledge from Fed Nominee Adrianna Kugler

Video of Hearing (YouTube)

Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) warned of the dangers of growing concentration in the banking system and called on three nominees to the Board of Governors of the Federal Reserve System (Fed) – Dr. Phillip Jefferson, Dr. Lisa Cook, and Dr. Adrianna Kugler – to institute the strongest possible bank merger guidelines and to reinstate tough financial regulations on big banks to protect consumers, the financial system, and the economy from serious risks posed by Too-Big-to-Fail banks. Senator Warren noted that President Biden issued an executive order directing banking agencies to revamp the bank merger review process and to use it to “guard against excessive market power.” She called on each of the nominees to push for the strongest version of bank merger review guidelines and tighter rules on big banks to keep giant banks from failing. 

Senator Warren also announced that she secured another historic ethics commitment from Dr. Kugler – the same one that she previously secured from Vice Chair for Supervision Michael Barr, Dr. Jefferson, and Dr. Cook. These nominees’ ethics commitments – to a four year recusal period from matters which they oversee on the Board of Governors, not to seek a waiver from these recusals, and not to seek employment or compensation from financial services companies for four year after leaving government service – are the strongest ethics standards in the history of the Fed.

Transcript: Nominations Hearing 
U.S. Senate Committee on Banking, Housing, and Urban Affairs
June 21, 2023 

Senator Elizabeth Warren: Thank you, Mr. Chairman. And congratulations to our nominees who, like every one of President Biden’s Democratic Fed nominees, have committed to the strongest ethics standards in the history of the Fed. Thank you for that.

The single biggest threat to our banking system is concentration. Three bank failures this spring reminded us that Too-Big-to-Fail is still alive and kicking in the banking industry. Little banks, even mid-sized banks, don’t pose those risks to our economy, but when multibillion dollar banks stumble, taxpayers are ultimately on the hook.

Even though we know about these risks, the big banks keep merging with other banks and getting bigger and bigger. But every one of those mergers must, by law, be approved by our financial regulators before they can go through. Despite the Too-Big-to-Fail dangers, the Fed, the FDIC, and the OCC have not formally rejected a bank merger application in more than 15 years.

Now, President Biden knows that this is a serious problem. That’s why he issued an executive order directing banking agencies to revamp the bank merger review process and use it to, and I’ll quote him here, “guard against excessive market power.”

As part of the Fed, you all would be called on to review and approve any big bank merger applications, so I just want to go down the line here. Dr. Jefferson, do you agree with President Biden that we need to strengthen the bank merger review process to protect against consolidation? 

Philip Jefferson, Nominee, Vice Chairman of the Board of Governors of the Federal Reserve System: Thank you senator for that question, and I want to contextualize a little bit if you would allow me. We follow the requirements given to us, the laws given to us by the Congress in determining mergers according to competitiveness, compliance with the Community Reinvestment Act, and the managerial competency for the–

Senator Warren: Dr. Jefferson, I know the law here. The question I’m asking you is, you are about to have to face this question about the bank merger review process that is yours, the Fed’s, that’s what the law says, you get the power here. And all I’m asking is do you agree with the President that we need to strengthen the bank merger review process to protect against consolidation? It’s a pretty simple question. Yes?

Dr. Jefferson: Well, senator, yes I mean I want to–

Senator Warren: I’ll take yes.

Dr. Jefferson: Okay, but I also would like to contextualize what is happening in these processes. So the banks are aware of the law just as you have stipulated and so we don’t want too much consolidation that’s exactly right –

Senator Warren: Good, I’ll take that then as a yes, that’s all I’m looking for here, is that consolidation is a problem, bank merger review guidelines are one way to beat back some of these consolidation drift that we seem to be heading into. Can I just settle this on a yes?

Dr. Jefferson: You can settle this in saying that we appreciate the fact that we need a diversity of banks in this economy and that we would not want too much consolidation. I agree with that whole-heartedly.

Senator Warren: You know, okay I just want to go down the line here but I got to tell you, I find your answer really troubling, that you can’t just say yes. 

Dr. Cook, what about you?

Lisa Cook, Nominee, Board of Governors of the Federal Reserve System: Senator, thank you for that question. So I’m not familiar with what President Biden said but as a member of the Committee on Financial Stability, I have a broad host of concerns related to safeguarding the financial system, and one of those issues happens to be concentration, among a lot of other factors. So, I would look forward to, if any proposal comes our way, look forward to reviewing it carefully. 

Senator Warren: So does that mean you think that consolidation is a problem and the bank merger guidelines, which have something to do with the consolidation, we should make them tougher in order to beat back consolidation? 

Dr: Cook: Bank concentration is definitely a risk to financial stability and therefore, yes I am concerned about that.

Senator Warren: Good, good. And Dr. Kugler, How about you? 

Adriana Kugler, Nominee, Board of Governors of the Federal Reserve System: Thank you Senator Warren and I appreciated talking about these issues in your office last week. I first want to say that I am very grateful for your commitment to uphold the integrity and trust in our government institutions and I was happy to sign the pledge. 

So getting to your question, let me say that I believe that the diversity of the banking sector is essential, competition in the banking sector is critical, and I think it is certainly one of the factors that allows low and moderate income households to have access to credit. So I think this is very critical. 

I can assure you that I would consider every merger application on its own merits, that I would understand the facts, that I would understand the consequences of consolidation, and I worry about excessive consolidation. So I certainly understand that you need a diversity of sizes of banks in the economy, but I think you need that competition and it is critical to allow low and moderate income housing to have access. 

Senator Warren: You know, I just want to say I am particularly concerned because regulators allowed America’s biggest bank, JPMorgan Chase, to swallow up First Republic following its May collapse, making JPMorgan, the biggest Too-Big-to-Fail bank, $200 billion bigger. 

And now some of those same regulators are rolling out the red carpet for even more mergers. According to a recent New York Times report, Treasury Secretary Yellen told big bank CEOs in a private meeting that she would welcome more bank mergers in part because it would make it easier for regulators to do their job of overseeing the financial system. 

Encouraging giant Too-Big-to-Fail banks to buy up small banks so there are fewer banks to monitor would be a dangerous mistake.

We need tougher bank merger review guidelines and tighter rules on big banks. I know that the Fed is working on those right now, and I expect each of you to push for the strongest versions of those proposals.

Thank you, Mr. Chairman.