Can the next bank consolidation cycle drive a more compliant, efficient, and customer-centric industry?
From the 1970s until the 2008 global financial crisis, the U.S. banking industry experienced massive consolidation. The number of depository organizations in the U.S. fell from over 15,416 in 1984 to 7,137 in 2008, a drop of 53 percent.
This trend was largely driven by deregulation of interstate banking, such as the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which permitted interstate branching. The deregulation allowed banks to acquire other banks in different states and to turn the acquired bank branches into their own.
In the post-financial crisis era, consolidation has been a community bank strategy in reaction to increased competition, low interest rates, and rising compliance and technology costs.
The large deals, $500 million in value and up, from decades before have stagnated under post-financial crisis regulation that implemented “regulatory ozone layers” in the form of $10 billion and $50 billion asset thresholds that banks have avoided.
Since 2010, there have only been two deals of $5 billion or more, compared to 23 the decade before, and the number of deals from $500 million to $5 billion in value is down 20 percent.
However, recent industry signals indicate the pendulum may finally be swinging in the other direction.
Early signals indicate bank consolidation is heating up for deals over $500 million in value:
Regulatory approvals, cost reduction, and branch network optimization will be key focus areas:
Banks will need to tackle lofty deal expectations with “in the trenches” capability investments:
Special thanks to contributors Christopher Sicuranza, Mike Jones, Natalia Ramos, Michael Adenuga, David Wittry, and Jessica Le.
The winners of the next wave in Banking M&A will make 'in the trenches' capability investments in regulatory compliance, aggressively automate back-office workflows, and spatially optimize their branch network with smaller, convenient, technology driven designs.”