Recently, Fitch Ratings concluded the peer review of 16 mid-tier regional banks. The group includes banks with total assets varying from $10 billion to $36 billion.

The other features of the mid-tier regional banks as highlighted by Fitch include homogenous business plans, dependency on spread income from loans and investments, and share repurchases. Further, mid-tier banks lack geographical diversification as well diversified revenue streams. Long-term Issuer Default Ratings (IDRs) for these banks are dispersed with a low of ‘BB-' and a high of 'A+'.

Fitch has affirmed the IDRs of Associated Banc-Corp ( ASBC - Analyst Report ) , BOK Financial Corporation ( BOKF - Analyst Report ) , Cullen/Frost Bankers, Inc. ( CFR - Snapshot Report ) , East West Bancorp, Inc. ( EWBC - Snapshot Report ) , First Horizon National Corporation ( FHN - Analyst Report ) , First Niagara Financial Group Inc. ( FNFG - Snapshot Report ) , Hancock Holding Company ( HBHC - Snapshot Report ) , People's United Financial Inc. ( PBCT - Analyst Report ) , Synovus Financial Corporation ( SNV - Analyst Report ) , Webster Financial Corp. (WBS), UMB Financial Corporation ( UMBF - Snapshot Report ) and Bank of Hawaii Corporation ( BOH - Snapshot Report ) . Sufficient capital levels, robust earnings and funding profile of these companies, along with strong asset quality, prompted the rating agency to affirm the ratings.

The IDRs of Cathay General Bancorp (CATY) and First National of Nebraska were upgraded. Elevated operating performance and constantly improving credit quality and sturdy capital levels were the reasons for the rating upgrade of these 2 banks.

IDRs of Fulton Financial Corporation (FULT) and TCF Financial Corporation ( TCB - Analyst Report ) were downgraded since these have weak asset quality, comparatively higher funding costs and balance-sheet risks along with a slow economic recovery.

Further, Fitch affirmed its outlook on most of the banks with the exception of Cathay General (which moved to ‘Stable’ from ‘Positive’), First National (‘Stable’ from ‘Positive’) and Synovus Financial (‘Positive’ from ‘Negative’).

In our point of view, the reasons for upgrade/downgrade and reaffirmation are well justified. The ratings allocation will prove beneficial to an already stressed financial sector. Further, this will reinforce investors’ confidence in the overall financial sector. In addition, this will likely help these financial institutions to withstand another financial crisis. Most importantly, this could ultimately result in less involvement of taxpayers’ money in the bailout of troubled financial institutions.