January 14, 2023 / VOLUME NO. 244

The New Big Bank Breeds

The number of commercial banks with more than $50 billion in assets has increased 43%, to 33, over the last six years, according to a Bank Director analysis. 

The growth in the number of big banks shows how regional institutions took advantage of new M&A opportunities after financial reforms in 2018 eased regulatory demands for big banks. But consolidation among regionals has also caught the eye of regulators who are concerned about financial stability risks.   

The $50 billion asset threshold came into significance after the 2010 passage of the Dodd-Frank Act. The act deemed institutions above that threshold as “systemically important financial institutions,” or SIFIs; this designation came with a number of regulatory requirements, oversight and exercises. For calendar year 2015 and 2017, there were 23 banks on this list.  

But in 2018, former President Donald Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, which pushed the SIFI threshold to $250 billion. 

“The increase in this threshold is especially important because it may spark renewed interest in M&A opportunities among regional banks that have carefully managed growth to avoid crossing $50 billion or that have otherwise been reluctant to pursue transactions in light of the significant regulatory scrutiny that has accompanied applications by large [acquirers],” wrote Cadwalader attorneys in a 2018 client memo.

The regulatory reforms meant big banks could pursue greater scale against already-sizable competitors, invest in more technology and serve even larger commercial clients with fewer regulatory burdens. And it did indeed lead to more institutions crossing $50 billion: There were 33 such banks in calendar year 2021. Pasadena, California-based East West Bancorp and San Juan, Puerto Rico-based Popular joined through organic growth. Some institutions, like North Carolina-based First Citizens Bancshares, joined through M&A. 

There have also been transactions among institutions that were already on the list — the list is getting bigger, and there are more frequent changes to the roster in recent years. The subset of SIFIs with more than $250 billion in assets has also grown, if slower. In 2016, there were eight banks with more than $250 billion in assets; in 2021, there were 10. 

But the regulatory environment has changed under President Joe Biden. In response, regulators may make it harder for the next big bank deal to get approved.

“[O]ur approval of such mergers could increase financial stability and [too big to fail] risks,” read a May 2022 speech from Acting Comptroller of the Currency Michael Hsu about potential changes to how bank merger applications are considered. “These risks give me significant pause, and are ones I would need to consider very carefully before approving a large bank merger.”  

• Kiah Lau Haslett, managing editor of Bank Director

A version of this piece appeared in the recently released first quarter 2023 issue of Bank Director magazine. Read the rest of the magazine here or learn more about subscribing here.

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