Are Midsize Banks Truly Endangered? Does the Industry Need Them?

You could say the story of the midsize bank is a glass half empty, a glass half full — or just a fragile vessel with open-ended exposure.

In its "Midtier in Flux" series, American Banker examined the problems afflicting this once sturdy asset class and raised numerous questions about its future. BankThink invites you to weigh in.

A quick recap:

The industry's midsection took a body blow during the crisis. From 2005 to 2010, assets at such banks, loosely defined as having $10 billion to $100 billion of assets, shrank nearly 30%, to $2.6 trillion. Such companies were once hardy lenders who fueled regional economies.

A fresh crop of small-bank survivors are eager to fill the void. A rising number of industry observers are convinced that the midsize category could enjoy a renaissance of sorts, if smaller banks — such as First Niagara Financial Group, TCF Financial Corp. and Astoria Financial Corp. — are able to tap into an economic recovery or grow through acquisition.

Scale is more important than ever given rising regulatory costs, but it comes with challenges and risks. Large community banks that aspire to the next rung face a critical challenge: expanding in size and scope while maintaining their small-bank identity. As companies such as First and People's United Financial Inc. in the Northeast, IberiaBank Corp. and Hancock Holding Co. in the Southeast and Umpqua Holdings Corp. in the West , expand into new territories via acquisitions, will have to prove they are not out-of-touch, out-of-town banks.

Meanwhile, some midtier banks — such as Cullen Frost Bankers Inc., Zions Bancorp and UMB Financial Corp. — are recouping their strength and, in some cases, growing revenue. Executives at these companies, which have deep roots in their regions, insist they can remain independent.

New threats are already in play. Editor-at-Large Barbara A. Rehm predicts regulators' interpretation of Dodd-Frank's supervisory directives for "systemically important" banks will put a disproportionate burden on the $50 billion-asset-plus sector and hasten the industry's concentration.

In an American Banker online poll, 38% of respondents said "finding growth opportunities" is the greatest challenge for midtier banks. The next biggest vote-getters were "shouldering new regulatory costs," at 36%, and "repairing credit quality," at 13%.

The big questions:

How big a problem is the threat to midtier banks? Do we need them, and why?

What's the best move executives of existing, and aspiring, midtiers could make in the current climate?

Is scale more important than ever? What are the tradeoffs, and are they worth it?

What's the best thing lawmakers and regulators could do to protect against further concentration of the industry?

What will the chart of the asset-size distribution of the industry be in 10 years?