Recent revisions to U.S. banking regulations will likely lead to greater merger and acquisition activity in the sector, says Moody’s Investors Service in a new report.

The reforms adopted last week, including a higher asset threshold for banks to be designated as systemically-important financial institutions (SIFI), from US$50 billion to US$250 billion, are expected to help spark increased M&A activity among banks.

“The higher asset threshold for SIFI designation reduces the number of U.S. banks subject to greater regulatory oversight and is likely to accelerate bank M&A activity,” Moody’s said in the report. In particular, “banks that were wary of exceeding the previous asset threshold for SIFI designation of US$50 billion will no longer need to consider the implications of surpassing it.”

Additionally, an increase in M&A activity would be credit negative for the sector, “because bank acquisitions have historically been significantly challenging for the acquiring institution, most notably when heightened deal volume results in more expensive transactions,” Moody’s said.  “This can encourage excessive risk-taking to achieve return targets.”

These deals also carry integration risk, attract increased regulatory scrutiny, and acquiring banks can inherit litigation risk, “that can be difficult to unearth during the due-diligence process.”