Bank regulators and the Treasury Department are learning the “wrong lessons” from the most recent spate of bank failures that nearly crashed the economy earlier this year, according to financial firebrand Sen. Elizabeth Warren (D-Mass.).

Warren wrote to Treasury Secretary Janet Yellen and top banking regulators telling them not to go soft on the issue of bank mergers and to keep banks competing against each other in the interest of consumers.

“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,” she wrote in a letter dated Monday.

The letter to Yellen and top officials reveals divisions among Democrats about how best to deal with the banking sector following the interconnected bank failures that started in March and posed a “systemic risk” to the U.S. economy.

Acting Comptroller of the Currency Michael Hsu testified to Congress last month that his office was “committed to being open-minded when considering merger proposals and to acting in a timely manner on applications.”

Yellen delivered similar remarks at a financial meeting of the Group of Seven rich nations in Japan last month, according to a report.

“This might be an environment in which we’re going to see more mergers, and you know, that’s something I think the regulators will be open to, if it occurs,” the Reuters news agency reported Yellen as saying.

Warren’s reprimand to regulators focused on how banks are no longer being forced by the Department of Justice (DOJ) to divest branches as a condition of merging with other banks.

“Why did DOJ feel the need to relinquish its use of divestitures as a potential remedy?” Warren asked Assistant Attorney General Kanter in the letter.

Warren also asked whether regulators intend to publish summaries about how levels of competition would be affected by various mergers.

The U.S. banking business has been growing increasingly concentrated for more than a century.

“Since its all-time high of 30,456 in 1921, the bank population had declined to only 4,377 at the end of 2020, a decline of about 86 percent. Even since 1934, after the 1933 bank holiday closed thousands of banks and the newly established Federal Deposit Insurance Corporation (FDIC) stabilized the banking system, the bank population has declined by 71 percent, or 10,973 institutions,” economist William Emmons wrote in a 2021 study for the St. Louis Fed. 

“The slow and steady decline in bank numbers continues. This is because few new banks are being chartered, and banks continue to merge with one another, reducing the number of charters,” he wrote.

That’s despite nearly record-high asset levels owned by commercial banks, which exploded after the pandemic.

The Cleveland Fed has described the effects of the long-term consolidation of the banking industry as “unclear” for consumers.“While the benefits of consolidating are clear for an institution, the benefits (and costs) for the consumer are less clear,” Cleveland Fed economists wrote in a 2021 study.