Regional Banks Are Ripe for Mergers as DC Warms to Consolidation

For years, US regional banks have operated under a paradox. Like all companies, they need growth to survive and want to do so predictably. Every billion dollars in new assets directly pads the bottom line. But the post-2008 regulatory crackdown designed to make banking safer has also made the slow-growth strategy trickier.

The moment a bank tiptoes across a key threshold like $100 billion or $250 billion in assets, more compliance costs kick in, potentially weighing on new revenue growth for years. Alternatively, banks can catapult past each regulatory asset threshold, typically through a merger or acquisition. A $90 billion bank joins forces with an $80 billion one, hopefully creating an institution that’s big enough and profitable enough to justify the new costs. “The basic premise is you’d rather leap across than crawl across,” says Gregory Lyons, a corporate partner specializing in financial institutions at the law firm Debevoise & Plimpton. “You don’t want to be the bank that has $250.1 billion. Because then you get all the regulatory burdens but not the scale.”