The Federal Reserve is raising to $100 billion the amount of combined assets that would trigger a systemic risk review of proposed bank mergers, a significant increase and yet another boon for deals involving regional lenders.
In an order late Thursday, the central bank approved People's United Financial (PBCT) - Get Report $402 million acquisition of Suffolk Bancorp (SCNB) . As part of the order, the Fed also made a broader statement, noting that bank merger proposals resulting in a combined firm with less than $100 billion in total assets are "generally not likely to create institutions that pose systemic risks." People's United Financial has about $40.6 billion in assets while Suffolk Bancorp has about $2.1 billion in assets.
The comments represent a loosening of merger review restrictions compared with a previous statement n 2012. That was when the Fed approved Capital One's (COF) - Get Report combination with the U.S. assets of ING and said deals creating firms with less than $25 billion in assets "may be presumed not to raise material financial stability concerns."
The Fed's statement indicates the environment for regional and community bank mergers is improving, said Isaac Boltansky, analyst at Compass Point in Washington.
"By shifting the presumption threshold for systemic risk reviews, the Federal Reserve has removed a hurdle in the M&A process for regional and community banks, which should serve as a concrete signal that the regulatory environment for consolidation is improving," Boltansky said in a statement.
The hike represents a four-fold increase in the threshold and one that is marginally bullish for small and regional bank M&A, added Jaret Seiberg, an analyst at Cowen Washington Research Group.
That's a boon for perennial acquisition targets including Comerica (CMA) - Get Report, New York Community Bancorp (NYCB) - Get Report, and Zions Bancorp (ZION) - Get Report. The three institutions, which have about $74 billion, $49 billion and $61 billion in assets respectively, can engage in mergers without having to worry about undergoing a Fed's systemic risk review.
Analysts are also still bullish on regulatory approval for larger regional bank deals that will create companies with $250 billion in assets, and even those with under $500 billion. That's good news for potential acquirers such as BB&T (BBT) - Get Report, and Regions Financial (RF) - Get Report.
Other obstacles for regional bank mergers remain in place, however, including the Fed's examination of whether institutions comply with Bank Secrecy Act provisions, anti-money laundering measures and consumer enforcement requirements.
Whether the Fed loosens its tough restrictions in those areas will depend on the Trump administration's choices for key regulatory posts, including his yet-to-be-announced pick to be the Fed's top bank supervisor.
"For help on that front, it will take President Trump naming new regulators," Seiberg said.