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Regional banks stand to be winners under the relaxed regulatory environment of the Trump administration, analysts say.
The Federal Reserve defines regional banks as having between $10 billion and $100 billion in assets. Most are too small to be described as community banks, but they lack the size and scale of the largest. According to the Fed, the three largest banks are Chase (JPM+2.03%), Bank of America (BAC+1.37%), and Citi (C+3.54%).
“The number one thing—and this comes as no surprise—is that regional banks are expected to face less regulatory burden than in past administrations,” says Jordan Sternlieb, a senior partner in financial services at Monroe West Partners, a business and technology consultancy.
“This means they can, ostensibly, allocate more dollars and resources toward discretionary strategic projects and investments that enhance the customer experience and modernize the bank for the future,” Sternlieb says, citing a GOP-led effort on Capitol Hill this week to push a repeal of Section 1071 of Dodd-Frank, which outlines banks’ responsibilities when working with small businesses.
Sternlieb says he expects to see confidence in regional banks growing this year and that a few could be break-out stars.
“Regional banks with aspirations for inorganic growth will thrive under this administration. With a more favorable M&A environment and the likelihood of faster regulatory approvals, I expect a few bold banks to seize the opportunity and expand,” Sternlieb says.
Chris Aronis, chief revenue officer at Enfi, an AI start-up that works with lenders at credit scoring says that regional banks will be big winners as regulations get pushed aside.
“Regionals will benefit from reduced capital requirements, and can expand their mid-market footprint by picking up customers that may be uncomfortable with deregulation “turning loose” the mega-banks,” Aronis says. He noted that their ability to diversify, deploy new tech to improve the customer experience, and “skate their lane” in their asset range can all drive growth.
Gates Little, President of the Southern Bank Company, which has several branches in Alabama says that positive attributes of smaller banks are able to be utilized more during a less stringent regulatory environment.
“Regional banks have advantages when compared to major or big banks like Wells Fargo (WFC+1.64%), JP Morgan, and Citi,” Little says, adding that these advantages are related to the speed and proximity to management that regional banks can have and a more decentralized management style.
“During periods of high or increased regulation, these advantages are dampened due to the bank-wide training and compliance audits that must happen to integrate the new rules,” Little says. He added that it is more efficient to have fewer people who can make decisions when there are more rules to follow, and this makes all banks the same as the business becomes about scale rather than service.
“If there are fewer regulations, the theory would be that regional banks might have advantages again, but it takes a while for that to happen,” Little says.
And while most analysts expect regional banks to thrive they could face some headwinds that their smaller size could enhance.
“It’s not all smooth sailing. Trump’s unpredictable trade policies, including tariffs and reshoring efforts, could shake up local economies, impacting loan demand and borrower stability,” says Andrew Latham, a CPA and content director at Supermoney.com.
“Plus, while less regulation might sound great, it could also open the floodgates to more competition from fintech disruptors and non-bank lenders,” Latham says. Still, all things considered, Latham says regionals could be winners.
“Bottom line - regional banks could see a major tailwind from Trump’s pro-business stance, but they’ll need to stay nimble in a shifting economic and competitive landscape,” Latham says.