Forthcoming heightened capital requirements for large banks should benefit community and regional banks more than fintechs.
According to a recent survey from IntraFi Network LLC, the vast majority of bankers expect community and regional banks to benefit from the Basel III endgame rules, which are set to raise capital requirements for banks with more than $100 billion in assets. According to the results from nearly 600 bank leaders throughout the US, 37% believe community banks will benefit most while 39% believe regional and superregional banks will benefit most if the higher requirements force large lenders to pare back their lending.
This stands in contrast to the opinions of large banks, which feel that nonbanks will benefit most from their potential pullback in lending to comply with heightened capital requirements. Just 19% of IntraFi's respondents expect fintechs to benefit most. The survey was distributed online to US bank executives between Oct. 3 and Oct. 15, and 597 bank CEOs, presidents, CFOs and COOs responded.
Large banks have said their lending capabilities will be hindered by higher capital requirements as banks pull back on lending to save cash or raise the cost of credit — an effect Federal Reserve Vice Chairman Michael Barr concurred with. Still, the large banks are reluctantly preparing to comply.
The survey also indicated that M&A could remain sparse over the next twelve months, as 72% of respondents said they have no interest in M&A in the next year. Nearly one-fourth said they plan to buy a bank in the next year, and 4% want to sell during that time period.
US bank M&A activity has hit historic lows this year, with just 84 deal announcements for a total of $3.47 billion in announced deal value through Oct. 24, compared to 133 deals for a value of $7.02 billion during the same time period last year, according to data from S&P Global Market Intelligence.
M&A picked up in the third quarter, with 34 announcements for $2.76 billion in deal value, but the survey and recent earnings call commentary suggest it will remain below normal levels for the foreseeable future.
"There's not a lot of activity out there," Cadence Bank Chairman and CEO Dan Rollins III said on the company's earnings call. "There's nobody knocking our door down and we're certainly not out chasing anything at this point."
