The Value of Regional Banks

In 1994, Congress finally allowed banks to cross state lines, while also allowing bank mergers. And merge the banks did — from 1995 to 2001, the number of banks shrank to 4,200 from 10,000. At the same time, the number of branches actually rose, to 72,000 from 59,000, as national banks spread.

If only deposits mattered, national banks would be all you need. But for farmers, start-ups, small businesses and companies in certain sectors, what matters most is the ability to get a loan. And here, say the experts, is where the regional banks often make more sense than the Big Four.

“The big national banks are operating in the global capital markets,” said Robert Hockett, a professor at Cornell Law School and banking expert. “A lot of their assets are based on speculation. They’re not fueling economic growth. They’re not funding new companies. Or farms. You need patient capital for that, and capital at the Big Four is not patient.”

“Regional banks have a combination of regional knowledge and expertise that makes lending more efficient,” said C. Michael Zabel, a former executive at MT, the Buffalo-based regional bank. “They’re also more likely to put deposits to work in their community.”

Silicon Valley Bank was a classic “sector bank.” It understood its sector — venture capitalists and technology start-ups — and made loans that national banks would never have countenanced. Its failure was caused by risk management mistakes, not its start-up heavy loan portfolio, which was sound, and has been happily taken over by First Citizens Bank.

Article source: https://www.nytimes.com/2023/04/01/business/dealbook/regional-banks-economy.html