Yellen Calls for Maintaining Diverse Banking Sector in U.S.

U.S. Treasury Secretary Janet Yellen highlighted the importance of maintaining a diverse banking sector today. During virtual remarks to the Wall Street Journal’s CEO Council Summit, Yellen cautioned against further consolidation of large banks. She noted that additional concentration of the financial sector would be undesirable.

“Banks of different types serve different needs. And I think that’s a great strength of our banking system. So, in general, seeing greater concentration among the largest banks is not something that’s desirable.”

Diverse banking sector necessary for a healthy economy

As the Secretary noted, the current diverse nature of the U.S. banking system is one of its biggest strengths. That system includes community, regional, and larger banks, each of which has an important role in serving Americans’ banking needs. In addition, the diverse nature of U.S. banking helps to ensure greater competition in the sector, benefiting businesses and consumers.

The number of commercial banks in the U.S. has already declined by roughly two-thirds in the last four decades.  In 1984, there were reportedly more than 14,000 such banks across the U.S. Today, there are fewer than 5,000 FDIC-insured commercial banks. That decline in the number of banks was the result of mergers, bank failures, and consolidations.

Addressing recent reporting from media outlets

Yellen’s comments cautioning against further banking consolidation also appear to clarify comments she made last week. According to CNN sources, she told bank CEOs that additional mergers might be needed if the banking crisis persists. That was interpreted by some media outlets as an indication that the Biden administration might be open to more consolidation.

Those remarks and the media’s interpretation helped to send stocks of regional banks lower at the end of last week. Today’s comments offered a clearer picture of the administration’s position by clearly championing a more diverse banking sector.

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