Bank Mergers Are Back on the Table at Last

The banking industry has been in something of a 'deal drought' – but that's about to change...

U.S. banks are on track for one of their slowest consolidation years in decades. They only announced 78 mergers through the first half of 2025.

Five years ago, the banking industry averaged roughly one merger-and-acquisition (M&A) deal per day... Now, we're seeing roughly two per week.

It's not that nobody wants to make deals. Both large and midsized banks still have an appetite for mergers. And smaller community banks are facing more pressure than ever to consolidate.

As we'll explain, this slowdown was caused by federal policy. And all the signs say it won't last much longer...

Political resistance and red tape stalled deals for years...

The Biden administration took a tough stance on banking consolidation.

Regulators across the Federal Reserve, Federal Deposit Insurance Corporation ("FDIC"), and Department of Justice ("DOJ") were far more skeptical of mergers... especially among large institutions.

In 2024 alone, two-thirds of major U.S. banks were rated "unsatisfactory" under the Fed's opaque supervisory framework. That rating effectively barred them from making acquisitions.

And for years, it has been a burden for banks to grow – even if they could...

Banks have to jump through more regulatory hoops as soon as they pass certain thresholds for assets. A bank with $100 billion on its balance sheet deals with a lot more red tape than one that only has $25 billion.

A lot of banks grow until they're just under these thresholds. Then they wait for the chance to make a big merger to soften the regulatory blow.

But with all those unsatisfactory ratings, many banks found themselves stuck in limbo... ready to buy, but unable to get deals approved.

Under the new administration, we're seeing a policy pivot...

Michelle Bowman, the Fed's new vice chair for supervision, has vowed to overhaul the merger review process. Bowman has criticized the current regime as outdated and opaque. She pledged to replace it with a faster, more transparent system.

That shift is already playing out. In April, the Fed signed off on Capital One Financial's (COF) $35 billion acquisition of Discover Financial Services.

It was the largest approved bank merger since 2019.

That decision broke a five-year M&A drought... and signaled a broader regulatory change. It also reflects mounting pressure for another reason...

We have far too many banks.

Most developed countries have a few hundred banks. The United Kingdom boasts a mere 344. Japan only has 112. Germany has quite a few, with 1,368.

But the U.S. has more than all three of those nations combined... sitting at around 4,500 banks.

All those tiny community banks don't stand a chance against the very biggest players. Institutions have a huge (and growing) advantage.

JPMorgan Chase (JPM), for example, is spending $18 billion on tech this year. That's nearly the entire budget of NASA.

As regulations fade, regional and mid-tier banks will be racing to grow. And with the M&A pipeline clogged for years, there's a backlog of buyers and sellers waiting for the green light.

After years on the sidelines, banks are ready to make moves...

The stars are finally aligned for a merger revival. Regulatory friction is easing, and banks clearly want to consolidate.

If you want to get ahead of this trend, watch for signs of renewed deal flow in the second half of 2025. A flurry of activity could signal that the floodgates are finally open.

The next wave of deals won't come from Wall Street giants. It'll come from regional and super-regional banks trying to compete for the long term.

That's the sweet spot for consolidation... and where the biggest surprises could come for investors.

Regards,

Joel Litman
August 11, 2025