Here's one reason regional banks are expanding

The Cincinnati-based regional bank Fifth Third announced Monday it would be acquiring the Dallas-based regional bank Comerica for about $10.9 billion. If approved by regulators, the deal would create the ninth-largest bank in the U.S., with nearly $300 billion in assets.

It wasn’t all that long ago that regional bank mergers were a sign of desperation — remember First Citizens swooping in to buy the shattered remnants of Silicon Valley Bank in early 2023? 

But a new wave of consolidation in mid-size banks means something different this time around.

Part of the reason everyone was so worried about regional banks a couple years ago is they’re a big source of lending for office buildings. But those still-empty cubicles haven’t become the financial contagion many feared.

“Banks have done a fairly good job of deleveraging, meaning, if they had really heavy exposure to the asset class, they've lightened that up, or they've increased their reserves,” said Kevin Fagan, an economist at Moody’s Analytics.

So, unlike the emergency shotgun mergers we saw in 2023, the spate of regional banking marriages announced this year — Fifth Third and Comerica, PNC and FirstBank, Pinnacle and Synovus — are more about who’s in charge of officiating those mergers.

“The most telling thing is that there's a new sheriff in town when it comes to consolidation in this industry, and it's much more liberal, if you can apply the word liberal to the Trump administration,” said Cornelius Hurley, a lecturer at Boston University Law School.

Hurley said Trump’s regulatory appointees have signaled a more permissive stance on bank mergers than the Biden administration.

One might think two regional banks combining different depositor bases would minimize the chance of a bank run. Remember, part of what sunk Silicon Valley Bank was too many customers from the same industry: tech. But Gregor Matvos at Northwestern University’s Kellogg School of Business said bigger isn’t necessarily safer.

“Whenever things tend to grow quickly in finance, we worry about bad things happening because they tend to happen. And what is very quick growth? A lot of big mergers are quickly growing things,” Matvos said.

He said a slowing economy could make regional banks’ balance sheets much more vulnerable than they’ve been the past couple years.