US banking mergers will accelerate over the next year, executives predict, driven by a more favourable approach from regulators, intensifying competition and the need to spend more on technology.
Anticipation about a surge in deals between American banks has been growing since Donald Trump won last year’s presidential election promising to cut regulation and unburden business.
But the volatility stirred up by Trump’s trade war threats has kept a lid on acquisitions, with only 78 so far this year — on track for one of the lowest annual totals in decades.
Banking executives, lawyers and analysts are hopeful the environment will soon turn more deal friendly. Several have predicted in recent weeks that more mergers will take place once there is greater clarity on US trade policy, interest rates and the economic outlook.
“My sense is that two, three, four months from now we are going to be a lot smarter about the economic backdrop than we are today . . . and given that, I think M&A will pick up,” Bryan Jordan, chief executive of Memphis-based bank First Horizon, said this month.
There are already signs of acquisitive instincts stirring among banks, including the informal talks BNY held recently with its smaller counterpart Northern Trust to explore a potential combination.
Those discussions have yet to yield any concrete action, according to two people briefed on the matter who said BNY, launched in 1784 by US founding father and first Treasury secretary Alexander Hamilton, was working with advisers to study a prospective deal.
Robin Vince, BNY chief executive since 2022, is convinced this is the perfect moment to strike given the expected relaxation of takeover rules, according to the people.
He has publicly indicated he is open to acquisitions, telling analysts recently that while “it’s still a very high bar . . . we will be thoughtful if we see ways to make our business get faster and better”.
The US has one of the world’s most fragmented banking sectors, even after the number of lenders halved to just under 4,500 in the two decades to the end of last year. The vast majority are relatively small with less than $10bn in assets.
Yet over the past four years the pace of deals in the sector has dropped by more than 50 per cent to an annual average of 173, according to LSEG data. There have only been $8.6bn of US bank mergers this year, tracking well below the typical annual total of almost $50bn.
Lawyers and analysts say a strict approach to bank mergers from regulators under former President Joe Biden held back deals in recent years. They think a major shift in regulators’ attitude in favour of banking consolidation will be critical in stimulating more takeover activity.
“Regulators are now looking more receptively on bank M&A and have the view that consolidation can be a positive,” said Rodgin Cohen, senior chair of law firm Sullivan & Cromwell. “The threat of new antitrust obstacles has diminished.”
Michelle Bowman, vice-chair of supervision at the Federal Reserve, this month signalled this much more bank-friendly approach, including towards mergers, in her first speech since being confirmed in the role.
As well as minimising delays to acquisition approvals, Bowman promised to make the process more transparent and clear. She also announced plans to rework the “large financial institution ratings” system, which has been a barrier to bigger banking deals.
Two-thirds of the largest US banks were rated “unsatisfactory” by the Fed last year, limiting their ability to do acquisitions. Bowman said there was a “mismatch” where many banks had poor ratings despite most meeting regulatory expectations for capital and liquidity, and promised to fix this.
The Fed is also likely to rethink how it currently uses the so-called Herfindahl-Hirschman Index to assesses market concentration in rural areas with the aim of opening the door to more deals between smaller community banks.
“There is pent-up demand for consolidation in banking,” said Jeffrey Taft, co-head of financial services practice at law firm Mayer Brown in Washington. “There are a lot of small community banks that are struggling and many of them have ageing CEOs with the next generation having no interest in running a community bank.”
The two other main US bank regulators — the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency — have already signalled a more supportive stance on bank mergers by rescinding recent guidance that executives said made deals harder.
“The regulatory window is wide open,” said Ebrahim Poonawala, banks analyst at Bank of America. “We need the proof-point of a larger banking deal being announced and the market reacting positively. If that happens the floodgates could open.”
The regulators showed their renewed openness to consolidation by approving Capital One’s $35.5bn takeover of Discover Financial in April, sealing the first major US banking merger for more than five years.
“A little more clarity over approval timelines is important,” Jordan told a conference in New York this month, two years after his bank First Horizon had a $13.4bn takeover by Canada’s TD Bank withdrawn due to repeated delays in obtaining regulatory approval.
Chris Marinac, director of research at Janney Montgomery Scott, said faster bank consolidation was more likely in 2026 rather than this year as executives would want regulatory changes to go through first.
He added that waiting for regulatory reforms to be “confirmed and done and in the books is probably meaningful so boards of directors know what the rules of engagement are”.
Each of the two biggest US consumer banks — JPMorgan Chase and Bank of America — has a more than 10 per cent share of deposits in the country, preventing them from acquiring more without a special waiver during a crisis.
Yet both JPMorgan and BofA are adding to the competitive pressure on smaller banks by expanding aggressively across the country. Wells Fargo is also seeking to grow after the Fed this month lifted an asset cap imposed in 2018 over its “fake accounts” scandal.
The need to invest rising sums in new technology such as artificial intelligence and cloud computing is further adding to the incentive to gain scale. JPMorgan said it planned to spend $18bn on technology this year — almost as much as Nasa’s total budget.
“Scale matters because there is scale inside of your marketing spend, inside of your tech budget, in your physical presence,” Bill Demchak, head of US bank PNC — widely seen as a likely acquirer — told a conference this month.
“My expectation is that over time — and this is a long period of time — that you are going to see consolidation of retail share that ultimately drives profitability of commercial banking in the US.”
