Optimism surrounding big bank mergers has been tempered by uncertainty, market volatility, and lingering regulatory concerns. While the Trump administration has signaled a shift toward deregulation, major financial institutions remain hesitant to make bold acquisition moves. Industry executives acknowledge that some roadblocks have been removed, but the landscape remains challenging for large-scale mergers.
Treasury Secretary Scott Bessent recently noted that bank mergers have been slowed down due to minor issues, yet industry insiders suggest that the situation is more complex. Just days before Bessent’s comments, regulators appointed by the Trump administration began rolling back stricter oversight measures implemented during Biden’s tenure. These changes were expected to ignite a new wave of dealmaking, but so far, banks remain cautious.
According to Bill Burgess, co-head of financial services investment banking at Piper Sandler, the slowdown in big bank mergers has been driven by multiple factors, including economic uncertainty, market instability, concerns over unrealized losses on bank balance sheets, and the regulatory challenges that come with merging large financial institutions. Although deregulation is seen as a step in the right direction, the complexity of these transactions means that banks are unwilling to rush into deals without full clarity on how regulators will respond.
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Consolidation Among Smaller And Regional Banks
Cheryl Pate, a senior portfolio manager at Angel Oak Advisors, anticipates some consolidation among smaller and regional banks but sees major mergers as significantly more difficult. She believes that deals at the super-regional level will still face intense scrutiny, making mergers of equals unlikely. With only a few large targets available that would meaningfully expand a big bank’s business, executives appear willing to wait rather than force a deal in uncertain conditions. PNC Financial Services, U.S. Bancorp, and Truist Financial are often cited by analysts as potential expansion candidates, but none have made a move yet.
On March 3, the Republican-led Federal Deposit Insurance Corporation (FDIC) announced a return to earlier guidelines for reviewing bank mergers, stepping away from the stricter framework introduced during Biden’s presidency. Randy Benjenk, co-chair of financial services at Covington & Burling, described this reversal as an important step in bringing certainty back to the industry. He noted that recent FDIC merger guidelines had deviated significantly from historical norms, creating additional challenges for banks looking to consolidate.
Despite the Trump administration’s efforts to refocus financial regulation and remove Biden-era obstacles, caution remains the dominant sentiment. After Trump’s election, there was widespread enthusiasm about a deregulatory wave that could make it easier for U.S. banks, of which there are over 4,500, to merge. While some restrictions are being lifted, the industry still faces a complicated approval process that discourages rapid dealmaking. Many executives previously criticized the Biden administration’s intense scrutiny of mergers, which they argued created unnecessary delays and disincentivized potential deals.
The $35 billion merger between Capital One and Discover Financial Services, announced in February 2024, is seen as a key test case for the new regulatory environment. A year later, it has yet to receive final approval, illustrating the persistent uncertainty surrounding big bank deals. Data from S&P Global Market Intelligence highlights the slowdown, with only nine transactions exceeding $1 billion since March 2022. This is a notable decline compared to the first year of Biden’s presidency, which saw twelve deals of similar size.
A major cautionary tale for the industry is Toronto-Dominion Bank’s failed $13.7 billion acquisition of First Horizon. The deal collapsed in 2023 after waiting over a year for regulatory approvals, and First Horizon’s market value has since dropped to just 70% of the original offer price. Reports suggested that regulators hesitated to approve the deal due to concerns over TD’s compliance with anti-money laundering laws. In 2024, TD ultimately paid more than $3 billion in penalties to resolve allegations of violating those regulations, further complicating its expansion plans.
Broader Regulatory Landscape
The broader regulatory landscape remains in flux, adding to the uncertainty. Key agencies like the FDIC and the Office of the Comptroller of the Currency are currently led by interim officials, leaving banks unsure of how future merger reviews will be handled. Many banks also have unresolved regulatory issues that would need to be addressed before any large-scale merger could be approved. A recent report from law firm Wachtell, Lipton, Rosen & Katz found that nearly two-thirds of large U.S. banks are still under some form of regulatory scrutiny, with issues ranging from governance weaknesses to liquidity risk management failures.
The aftershocks of the 2023 collapses of Silicon Valley Bank and First Republic Bank continue to weigh on investor confidence and make mergers more difficult. At the same time, rising U.S. interest rates have left banks with significant unrealized losses on their securities portfolios. If banks were to merge, these paper losses would become real losses, adding another layer of complexity to potential deals.
Barclays analyst Jason Goldberg acknowledges that hurdles remain but believes the long-term outlook for bank mergers is positive. He notes that banks need more clarity on regulatory expectations before deal activity can pick up. However, he also expects that over time, unrealized losses will decline and the industry’s natural tendency toward consolidation will reassert itself. While the current environment is challenging, many experts believe that mergers will return once the landscape stabilizes.
