Yellen Predicts More Bank Mergers This Year

Rising interest rates and a recent banking crisis could lead more lenders to merge this year.

That’s according to U.S. Treasury Secretary Janet Yellen, who made that forecast in a Friday (June 23) Wall Street Journal (WSJ) interview looking at the state of the banking industry in the wake of the March failures of Silicon Valley Bank (SVB) and Signature Bank.

The WSJ notes that Yellen’s comments are a strong indication regulators expect the turmoil in the banking industry to bubble up again. Yellen told the newspaper she didn’t anticipate the same instability the sector saw in March, though weaker earnings could prompt some mergers.

“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.

She added that more consolidation in the industry could be healthy, although she cautioned against the biggest banks becoming even larger.

“We certainly don’t want overconcentration and we’re pro-competition, but that doesn’t mean no” mergers, said Yellen. “We have more banks, relatively speaking, in the United States than almost any country of which I’m aware.”

Last month saw reports that Yellen had told a group of banking industry executives that their sector may need more mergers. 

Her more recent comments came the same day the Federal Reserve reported that deposits at American banks rose to $17.22 trillion in the week ended June 14, up from $17.20 trillion the prior week, a sign that pressures from deposit withdrawals have eased.

Banks had been experiencing some turbulence as customers drew down on their deposits in recent months. As PYMNTS reported earlier this month, those customers had been spurred to grab what they could after seeing the collapse of SVB and Signature Bank, combined with the debate and fear that depositors’ uninsured funds might be lost.

Beyond that, rising interest rates have led consumers to shift money to things like money market funds to get back greater returns.

In May, the Federal Deposit Insurance Corp. (FDIC) said that banks saw their deposits drop by $472 billion in the first quarter — the worst decline in the almost four decades that the agency has compiled that data.