PARIS—The landscape for credit unions will only become more competitive if the country’s Treasury Secretary is correct, potentially signaling the pace of mergers will not be letting up.
On the flip side, some credit unions are likely to leverage their status as being smaller and locally owned.
Treasury Secretary Janet Yellen said she expects 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, according to the Wall Street Journal.
Paying higher rates for deposits is denting 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, according to the Journal.
Not a ‘Huge Threat’
“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 told the Journal while in Paris, where she is attending meetings on debt and climate projects in the developing world.
According to the Journal report, Yellen didn’t name any banks she was watching, but she has previously said it was possible some banks could look to buy each other.
“Her new comments are the clearest sign that regulators are bracing for industry turbulence when banks report their second-quarter earnings,” the Journal added, noting bank regulators have been reluctant to let big lenders buy each other recently.
In the interview, 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.”
CRE Risks Being Watched
The Journal added that while Yellen said she doesn’t expect any decline in earnings to send the industry back into crisis, federal regulators are watching for signs of trouble, including around risks many banks face in commercial lending portfoilios.
Yellen said those risks primarily lie in the loans smaller banks have extended for office buildings.
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