America is losing too many banks, according to Sen. Elizabeth Warren. She and Rep. Jesús “Chuy” García (D., Ill.) observe that the number of banks in the U.S. has declined “from over 12,000 in 1990 to less than 5,000 today.” This is a problem, they argue, because mergers could create a “new ‘Too Big to Fail’ bank that could threaten our financial stability.” To prevent that, they propose the Bank Merger Review Modernization Act. It’s a misguided measure.

Why were there 12,000 banks in 1990? For most of U.S. history, banks...