Sweeping regulatory changes could nudge more big banks to consider acquisitions.

A big part of a deal between Senate Banking Committee Chairman Mike Crapo and a key group of Democrats to amend the Dodd-Frank Act involves raising the systemically important financial institution threshold from $50 billion in assets to $250 billion.

That could immediately free a handful of banks from enhanced oversight, including capital requirements, while giving institutions nearing the current threshold more confidence that organic growth and acquisitions will not lead to added regulatory burden.

“All of those banks that are interested could be more active” with acquisitions, said Brian Klock, an analyst at Keefe, Bruyette & Woods.

Optimism has been building among bankers that lawmakers would eventually increase the SIFI threshold.

Washington’s outlook on regulatory relief seems “a lot more favorable today than it was a year ago” in terms of compliance issues such as the $50 billion-asset mark, David Rosato, chief financial officer at People’s United Financial in Bridgeport, Conn., said during a conference call last month to discuss the $44 billion-asset company’s financial results.

Still, People’s United continues to act as though no relief is imminent, Rosato said, noting that the company continues to prepare for the stress testing required for SIFIs.

The Crapo-led plan could allow SVB Financial Group to “focus even more on lending and job growth,” Greg Becker, the $48 billion-asset company’s CEO, said in a statement issued Tuesday.

People’s United and SVB are among a cluster of about a dozen banks with $35 billion to $50 billion in assets that should benefit greatly from the plan, said Greyson Tuck, an investment banking adviser at the law firm Gerrish Smith Tuck. The proposal would let institutions, especially those with less than $100 billion of assets, avoid annual stress tests, higher capital and leverage requirements and other heightened standards.

Only one bank — CIT Group — has clearly crossed the SIFI threshold with an acquisition. A significant increase from $50 billion could open up more options for banks that were keen on deals but concerned about becoming a SIFI.

“If you’re a $45 billion-asset institution and you want to [buy] a $15 billion bank … you can increase your size by a third but not pick up everything that goes along with becoming a SIFI,” Tuck said of the proposed legislation.

For some, the $48 billion-asset New York Community Bancorp’s effort to become a SIFI by buying Astoria Financial was a test case for the industry. The deal, however, fell apart late last year over regulatory concerns. For many quarters, the Westbury company has been actively managing its assets to stay below $50 billion.

“While we believe SIFI status should not be determined by size, but by individual bank risk analysis, we certainly welcome raising the threshold to $250 billion, as has been reported,” Joseph Ficalora, New York Community’s president and CEO, said in a statement Tuesday. “It is a critical first step in the right direction and will be a positive for our company and beneficial to the industry, and the greater economy, as a whole.”

Banks that are already considered SIFIs should benefit, too. The annual Comprehensive Capital Analysis and Review has constrained banks' deployment of capital; it also influences how they approach a number of decisions, including acquisitions, industry experts said.

Giving more control of capital management back to CEOs could spur more acquisitions.

“I think it is a capital management issue,” said Scott Siefers, an analyst at Sandler O’Neill. “Rather than ask permission once a year, you can probably more in real time advise [regulators about] what you’re doing rather than asking to do it.”

Though the plan raises hopes for more consolidation, some industry experts remain skeptical.

While the proposed legislation could remove one impediment to M&A, Charles Crowley, a managing director at Boenning & Scattergood, said it is unlikely to lead to a “huge wave” of big deals. “Sometimes investment bankers and attorneys say there will be a wave — and it is just wishful thinking,” he said.

At the same time, there are limited options for big banks to gain significant scale with just one acquisition, industry experts said. And there are two roughly dozen bank holding companies with assets of $50 billion to $250 billion.

Larger bank deals will likely continue to be highly scrutinized by regulators, and community groups are more apt to rally against bigger mergers since such deals typically impact many markets. Several big banks are still working through issues tied to the Bank Secrecy Act, the Community Reinvestment Act and fair-lending laws.

Many of the nation’s biggest banks are likely to steer clear of acquisitions altogether, Tom Michaud, KBW’s president and CEO, said during a panel discussion last month hosted by the University of Mississippi.

Banks that have crossed the SIFI threshold are unlikely to see compliance costs meaningfully decline, industry experts said. It is doubtful that management teams would dismantle systems and processes just because of a legislative change.

“You might be able to push a few consultants out of the building,” said Jeff Davis, managing director of Mercer Capital’s financial institutions group. “But I don’t see how you turn it off.”

Bankers may remain cautious even if a law is passed in order to find out how regulators will implement any changes. For instance, the Crapo-led plan would let the Federal Reserve target companies with less than $250 billion in assets if they are viewed as a risk.

The $41 billion-asset Signature Bank in New York is on track to become a SIFI by early 2020.

“We’re going to wait and see what changes” regulators might make, Signature President and CEO Joseph DePaolo said when asked during a recent quarterly conference call about the potential benefits of a raised threshold. “Then we’ll be able to give better guidance.”

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