Yellen Says More Bank Mergers Likely This Year
Treasury secretary says she doesn’t see ‘huge threat,’ but comments show regulators bracing for turbulence
PARIS—Treasury Secretary Janet Yellen said more banks will probably seek to merge this year as higher interest rates and recent banking turmoil are making it more expensive for them to hang onto depositors.
Some smaller banks have said they are paying more on savings accounts after the Federal Reserve began quickly raising rates last year. Yellen said that trend has continued following the collapses of Silicon Valley Bank and Signature Bank in March, when small and midsize banks across the country saw depositors jump to larger institutions they believed were less vulnerable.
Paying higher rates for deposits is denting those banks’ profitability, Yellen said, which could become apparent in banks’ second-quarter earnings next month. She said she didn’t expect a return of the instability of earlier this year, but weaker earnings could put pressure on stock prices and potentially prompt some banks to merge.
“I don’t think it’s a huge threat to the sector, but there will probably be banks that end up wanting to merge,” Yellen said in an interview in Paris, where she is attending meetings on debt and climate projects in the developing world.
Yellen didn’t name any banks she was watching. She has previously said it was possible some banks could look to buy each other, but her new comments are the clearest sign that regulators are bracing for industry turbulence when banks report their second-quarter earnings.
Bank regulators have been reluctant to let big lenders buy each other recently. But some banking experts have said they would need to allow more mergers to shore up confidence in the system. Regulators seized First Republic Bank and sold the bulk of its operations to JPMorgan Chase in May.
Yellen said more consolidation in the banking industry could be healthy, though she has warned against the biggest banks becoming bigger.
“We certainly don’t want overconcentration and we’re pro-competition, but that doesn’t mean no” mergers, she said. “We have more banks, relatively speaking, in the United States than almost any country of which I’m aware.”
While she doesn’t expect any decline in earnings to send the industry back into crisis, federal regulators are watching for signs of trouble. The Financial Stability Oversight Council, an interagency panel of regulators led by Yellen, met last week to discuss the banking sector, focusing on risks banks face in their lending for commercial real estate.
Yellen said those risks primarily lie in the loans smaller banks have extended for office buildings.
A shift toward remote work has undermined the value of many office buildings, while higher interest rates have increased the cost of many commercial mortgages. That has left many landlords at risk of default, which could in turn create trouble for the smaller banks that hold much of that debt. About $270 billion in commercial mortgages held by banks is set to expire this year, according to data provider Trepp.
Yellen said she doesn’t expect office-building loan defaults to cause broad fallout, though it could cause additional banks to fail. She said smaller banks have generally been conservative in their lending.
“There may be some problems from this, but I think it’s going to be manageable,” she said. “But I don’t really think that this is systemic.”