Warren, Yellen at odds

Jun 28, 2023

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Sen. Elizabeth Warren has a long history of taking on U.S. Treasury secretaries — even those of her own party. Now it’s Janet Yellen’s turn.

Yellen is drawing Warren’s ire over the issue of bank mergers.

As we’ve reported in MM, Yellen has signaled an openness to consolidation as the industry recovers from the failures of Silicon Valley Bank, Signature Bank and First Republic. Acting Comptroller of the Currency Michael Hsu, appointed to the job by Yellen, has hinted at a similar permissiveness.

Warren in a new letter warns Yellen and Hsu that they are taking “exactly the wrong approach.”

“Allowing additional bank consolidation would be a dereliction of your responsibilities, hurting American consumers and small businesses, betraying President Biden’s commitment to promoting competition in the economy, and threatening the stability of the financial system and the economy,” Warren writes in the letter. It’s also addressed to DOJ antitrust lead Jonathan Kanter, Federal Reserve Vice Chair for Supervision Michael Barr and FDIC Chair Martin Gruenberg.

In her warning to top officials, Warren cites MM’s recent reporting and analysis of the situation, noting that the permissive tone sticks out amid a broader Biden merger crackdown and that bank lobbyists are picking up on what one called “something of a sea change.”

To be sure, Yellen has touted strength she sees in the diversity of the U.S. banking system, with small, regional and global banks available to serve various customer needs. But as recently as a Friday interview with the Wall Street Journal, Yellen said more consolidation could be healthy.

“We certainly don’t want overconcentration and we’re pro-competition, but that doesn’t mean no” mergers, she said.

This won’t be a one-and-done from Warren. She has historically picked high-profile fights in service of broader campaigns to influence policy and personnel. It’s safe to assume this is part of a longer-term ramp-up to impact the future of bank M&A.

Happy Wednesday — What's keeping you busy while Congress is out? Let us know: Zach Warmbrodt, Sam Sutton.

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Driving the day

President Joe Biden will deliver a “Bidenomics” speech in Chicago at 1 p.m. … Danish National Bank Governor Signe Krogstrup and Bank of England senior manager Katie Fortune talk central bank digital currencies at the Peterson Institute at 9 a.m. … Fed Chair Jerome Powell speaks on a panel with ECB President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Japan Governor Kazuo Ueda at the ECB Forum on Central Banking at 9:30 a.m.

Quarles is back in banking — The FT scoops that former Fed Vice Chair for Supervision Randal Quarles’s investment firm is helping launch a bank with a former risk officer for SVB – an attention-grabbing association considering the scrutiny Quarles has faced for how the Fed policed the failed SVB under his watch.

The venture – dubbed Currency Reserve — “plans to sell and deliver dollars primarily to local banks outside the U.S.,” rather than making loans or taking deposits. Quarles is not expected to have an operational role. Currency Reserve chief executive Vivek Tyagi left SVB in 2019 after a year.

According to the FT, Currency Reserve’s executives believe there is demand for their offerings from banks that service small merchants, in particular those in places visited by U.S. travelers or lacking a strong local currency.

SBA Covid fraud, tallied — The SBA’s inspector general said in a report Tuesday that the agency disbursed an estimated $200 billion in potentially fraudulent pandemic assistance, including PPP loans and EIDL money. That’s about 17 percent of all Covid-19 PPP and EIDL funds, according to the IG.

The SBA said in a response that the IG’s findings contain “serious flaws that significantly overestimate fraud and unintentionally mislead the public to believe that the work we did together had no significant impact in protecting against fraud.” The agency estimates $36 billion in pandemic relief was obtained fraudulently.

Congress plans to dig into the SBA watchdog’s investigation. SBA inspector general Hannibal “Mike” Ware will testify before the House Small Business Committee on July 13.

“When Covid-19 hit the United States, the SBA was tasked with taking on an oversized role to help save small businesses and our nation’s job creators,” Small Business Chair Roger Williams (R-Texas) said. “Unfortunately, these after-action reports show the agency was not up to the task.”

SBF set for trial — The WSJ reports that a judge denied FTX founder Sam Bankman-Fried’s request to dismiss criminal charges related to his crypto exchange’s collapse, teeing up a trial in October.

Economy

Is the ‘Bidenomics’ campaign a recession signal? — Our colleagues Adam Cancryn and Jonathan Lemire have a deep dive into the gamble the White House is taking with Biden’s upcoming push to take credit for the state of the economy. It indicates that administration officials aren’t expecting a deep recession.

“I don’t think anybody in the White House would say there’s zero chance of a recession, but I think their view is that at worst, it would be a fairly shallow and fairly short recession,” said Seth Harris, the former deputy director of Biden’s National Economic Council. “That’s a risk they’re willing to bear because the rest of the economic news has been so strong.”

On the Hill

Swipe fee pressure — Sam reports that Small Business Rising, a coalition of around 40 national and local retail associations, sent a letter to the White House and congressional leaders urging them to make Sens. Dick Durbin (D-Ill.) and Roger Marshall’s (R-Kan.) bill that would crack down on credit card fees a “top priority.” The bill faces stiff opposition from payment networks and banks.

Climate

Insurers respond to Treasury’s climate report — Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, said Treasury’s report on climate risks facing insurers “provides a broad recognition that the state-based system of insurance regulation is working as it should” but that the Federal Insurance Office shouldn’t seek a “one-size-fits-all” approach. FIO is calling on insurers and state regulators to ramp up their efforts to respond to global warming.

“NAMIC believes FIO should defer to the unique, specialized understanding functional state regulators have of risks presented in each state,” Grande said. “Going forward, NAMIC hopes that FIO will follow its statutory guidance to partner with state regulators instead of creating duplicative work and infringing on existing workstreams.”

Regulatory Corner

Europe has agreement on bank capital — Our Hannah Brenton in Brussels reports that EU negotiators reached a deal to bring global bank capital standards into force in Europe, after breaking a deadlock on applying the rules to banking subsidiaries, checks on bank directors and requirements for foreign banks.

Fly Around

People moves – Lauren Bianchi is joining JPMorgan Chase’s policy communications and public affairs team as executive director. Bianchi is departing as senior vice president at the Consumer Bankers Association … Billy Rielly is being promoted as CBA’s SVP of public affairs, and Roman Burleson will take on a new role as head of creative and digital strategy.

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