WASHINGTON — Senator Elizabeth Warren plans to introduce a bill in coming weeks that would intensify the scrutiny of bank mergers, a signal less of legislative action to come than of her intentions for the finance industry if she is elected president.
The bill, a companion of which will be introduced Wednesday in the House by Representative Jesús “Chuy” García, Democrat of Illinois, will almost certainly go nowhere in the Republican-controlled Senate. But its argument that the “review process for bank mergers is fundamentally broken” indicates that Ms. Warren, Democrat of Massachusetts, still has the financial industry in her sights.
It would demand more extensive testing for vulnerabilities when two banks want to merge, a bid to slow financial sector consolidation and lean against the formation of huge banks. And it would require the Consumer Financial Protection Bureau, which Ms. Warren helped create, to approve any merger in which one of the banks offers consumer financial products.
The proposal is the latest sign that if Ms. Warren wins the White House, her victory could usher in a new era for the rules that govern banking. Financial regulators, including the Federal Reserve, have been relaxing requirements put in place after the 2008 financial crisis in recent years, often at the behest of Congress. The changes have jibed with the Trump administration’s broader push for a lighter-touch government.
Big banks and some Republicans have pressured for even more aggressive action. On Nov. 19, a group of House lawmakers sent the Federal Reserve a letter urging it to move forward in its efforts to make stress tests — which check up on how much capital banks would need to weather a recession — more transparent.
“Although we recognize the importance of strong capital requirements,” big banks’ ability to serve as leading lenders “depends on the efficient calibration of regulation, including capital requirements,” the letter reads.
Ms. Warren takes a different view. She has long been skeptical of the Fed’s oversight of the banking industry, seeing it as too lax. She opposed the nomination of Jerome H. Powell in 2018 to become the Fed chair, saying that he might “roll back critical rules that help guard against another financial crisis — and that is simply a risk we cannot afford.”
More recently, she has been vocal in questioning the merger of BB&T bank with SunTrust, which was approved last month by the Fed — with stipulations, including a requirement that BB&T divest 30 branches and more than $2.4 billion in deposits to prevent it from hurting competition.
Democrats and some analysts have said that the SunTrust-BB&T merger, the biggest since the financial crisis, has been made possible by a regulatory rollback law that President Trump signed in 2018. The legislation eased some regulations for large regional banks, and opponents warned at the time that it would pave the way for industry consolidation.
Of 3,819 merger applications filed from 2006 to 2017, the Fed approved 3,316, according to a letter that the central bank sent Ms. Warren in response to questions. Another 503 were withdrawn. Not one was formally rejected.
Ms. Warren’s and Mr. Garcia’s new bills would require a stricter examination of some merging banks’ balance sheets while requiring greater insight into discussions that take place among the banks and their regulators before a merger application is filed, according to their release.
The House Financial Services Committee will hold a hearing on bank safety and soundness at 10 a.m. Wednesday. Randal K. Quarles, the vice chair for supervision and regulation at the Fed, is slated to testify.
“The banking system is substantially better prepared to manage unexpected shocks today than it was before the financial crisis,” he plans to say, according to prepared remarks released by the Fed. “Now, when the waters are relatively calm, is the right time to step back and examine the efficiency and effectiveness of our protection against future storms.”
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