Financial reform is not just about the giants of Wall Street. A bipartisan agreement announced this past Monday would give midsize U.S. regional banks some relief from regulatory scrutiny, serving to free up excess capital that could be distributed to shareholders in the form of dividends or share buybacks, according to the Wall Street Journal.

Seven of the most overcapitalized of these midsize lenders include Comerica Inc. (CMA), Zions Bancorp (ZION), Citizens Financial Group Inc. (CFG), M&T Bank Corporation (MTB), CIT Group Inc. (CIT), Fifth Third Bancorp (FITB) and KeyCorp (KEY). As of the close of trading on Thursday, Comerica was up 15.14% year to date (YTD), Zions was up 7.13%, Citizens Financial was up 6.43%, M&T was up 2.20%, CIT was up 10.24%, Fifth Third was up 5.56% and KeyCorp was down 0.77%. (To read more, see: Midsize Banks Poised to Win in the Trump Era.)

New Rules

Currently, banks with more than $50 billion in assets are subject to more stringent regulatory oversight, including having to undergo annual stress testing. The new rules would push that minimum threshold up to $250 billion.

Such a move would put less pressure on banks to hold excess capital on their books, freeing up equity that could be returned to shareholders through increased dividend payouts and buybacks. Reducing the total number of shares outstanding through share buybacks over the next couple of years could boost earnings per share by between 13% and 17% for banks like Comerica, Citizens Financial, Zions and CIT, according to the Journal. (To read more, see: Top 4 Bank ETFs as of August 2017.)

M&A Activity

But it’s not just the midsize banks that would benefit. Smaller banks with total assets less than $50 billion would have more freedom to increase lending activity before reaching the new $250 billion threshold. Many banks remained small in order to avoid complying with the tougher rules that came with having more than $50 billion in assets.

That increased room to expand assets would also likely lead to a wave of mergers and acquisitions (M&A) in the banking industry, especially for those banks in the $10–50 billion range. There are currently over 50 banks in this range, according to the Journal.

While things are looking up for small and midsize banks, don’t forget about the Wall Street giants. Warren Buffet hasn’t. According to a note published earlier this week by Barron’s, Buffet’s Berkshire Hathaway still owns a $17.2 billion stake in Bank of America, and with a 9.4% $464.2 billion stake in Wells Fargo, is also that bank’s largest institutional investor. 

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