By Telis Demos

To become a national banking player in the U.S., it seems you must also be a local one.

The U.S. banking system is increasingly characterized by having fewer, and bigger, lenders. In 2005, there were nearly 9,000 banks insured by the Federal Deposit Insurance Corp. Now, there are fewer than 5,000. And just three banks represented about 30% of all U.S. domestic deposits at midyear, according to FDIC data: JPMorgan Chase, Bank of America and Wells Fargo.

Yet a recent string of deals among regional and midsize banks reveal a drive not just for greater scale, but also the ability to build strongholds in specific, local markets. This will prove key in building defenses against banking giants in what remains the core of banking: reliable deposits.

On Monday, Fifth Third said it was acquiring Comerica in a $10.9 billion deal. PNC Financial Services last month said it was buying FirstBank for $4.1 billion.

Deals like these will hardly result in behemoths the size of JPMorgan Chase or Bank of America. PNC's chief executive has ultimately set his sights on roughly doubling its size to $1 trillion in assets -- while Colorado-based FirstBank brought in just $27 billion.

But one thing they do bring is the promise of being able to build relationship- and branch-based networks of deposits that might be less likely to flee the next time interest rates rise or there is a banking crisis elsewhere in the country.

Building such a deposit base -- even if it arises from a patchwork of regional concentrations -- can be a better way to grow into becoming a national platform that lends to, or advises, a swath of consumers and businesses.

It can be easy for banks to attract cash from anyone, especially online and when interest rates are low. And it can be easy to grow loans across the country by making them cheaply. In times of stress, however, like the 2023 regional banking crisis, it is a bank's sticky deposits that become its best defense.

On a conference call with analysts following the deal announcement on Monday morning, Comerica CEO Curt Farmer said that the bank was "hit harder than some" during the 2023 crisis.

A lot of that had to do with Comerica having a base of larger, commercial deposits, rather than a more retail base made up of lots of smaller deposits, he said. That mix "made our deposits a bit more flighty. It's a little easier to move large chunky commercial deposits," he said.

Comerica shares had returned about 5% annually over the past three years through last Friday, before the deal announcement, while S&P 1500 banks overall returned around 24% over that period.

Farmer described the deal with Fifth Third as taking Comerica, a strong commercial bank, and "marrying that with a really great retail deposit base."

Fifth Third on Monday said that it expects after the deal to have the top retail deposit franchise in Michigan, where Comerica began in the 1840s, and to solidify its "fortress" position across the Midwest.

But its ambitions go well beyond that region. Last year, it announced plans to expand its footprint by opening more than 200 branches, primarily in key Southeastern markets. It also is growing in commercial payments and in wealth management. Comerica brings its footprints in other regions, including Texas and California.

Even global powerhouse banks are looking locally. JPMorgan Chase, for example, has said it wants to increase its U.S. retail deposit share from 11% to 15%.

Part of its playbook to do so has long been by building out branches in selected cities. Earlier this year, CEO Jamie Dimon's bus tour of branches included Mississippi and Alabama for the first time, as the bank aims to expand in the region.

Evidently, even America's biggest bank recognizes the importance to a deposit franchise of having a local branch nearby. That isn't lost on regionals seeking to defend their position.

What regionals might fear most about their large peers isn't their sheer size, but when they focus locally. For example, Wells Fargo has for years been limited in how aggressively it could grow deposits, thanks to its Federal Reserve-imposed asset cap. But now that cap has been lifted. It has said it aims to refresh its entire branch network by the end of 2028 and to expand its network in key locations, including Chicago and Nashville.

The Federal Reserve's next moves are likely to lower rates further. That could help ease the pressure that regional banks have been under in recent years to defend their deposits. But they won't quickly forget the lessons of the 2023 crisis. Any rate relief now could merely provide more impetus to band together and strengthen their defenses for the future.

Write to Telis Demos at Telis.Demos@wsj.com

(END) Dow Jones Newswires

October 07, 2025 05:30 ET (09:30 GMT)

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