As US bank mergers accelerate over the next year, management predicts that they will be driven by a more favorable approach from regulators, increased competition and the need to spend more on technology.
There has been a growing expectation about a surge in interbank transactions in America since Donald Trump won last year’s presidential election and pledged to cut regulatory and burdenless businesses.
However, volatility stirred up by the threat of Trump’s trade war has only 78 people so far this year, making it well ahead of one of the lowest annual totals in decades.
Bank executives, lawyers and analysts hope that the environment will soon become more accessible. Several people have predicted that more mergers will occur in recent weeks as US trade policies, interest rates and economic outlook become clearer.
“My feeling is that in a few months, we will be much smarter about our financial background than we do today. And I think M&A will recover.”
Robin Vince, CEO of BNY, has publicly shown that he is accepting the acquisition ©Jeenah Moon/Bloomberg
There are already signs of instinct to stir between the banks. This has been held by BNY in a smaller Northern Trust recently to explore potential combinations.
These arguments have yet to bring about concrete actions, according to two people who said BNY, which was launched in 1784 by the founding father of the United States and First Treasury Secretary Alexander Hamilton.
Robin Vince, BNY’s CEO since 2022, believes this is the perfect moment to strike, given the expected relaxation of the acquisition rules.
He has publicly shown he is open to the acquisition, and recently told analysts, “It’s still a very expensive bar… but if we see how to make our business faster and better, we’ll be thoughtful.”
The US has one of the world’s most fragmented banking sectors, even after the number of lenders was halved to less than 4,500 in 20 years last year. The majority are relatively small, with assets of less than $10 billion.
Over the past four years, the pace of trading in the sector has dropped by more than 50% to an average annual decline of 173 people, according to LSEG data. This year, US bank mergers only cost $8.6 billion, well below the typical annual total of $500 billion.
Lawyers and analysts say that a strict approach to bank mergers from regulators under former President Joe Biden has thwarted transactions in recent years. They believe that a major change in regulatory attitudes in favour of bank integration is important in stimulating more acquisition activities.
“Regulators are now more embraced in bank M&As and have the view that integration could be positive,” said Rosin Cohen, senior chairman of the law firm Sullivan & Cromwell. “The threat of new antitrust disorders is declining.”
Michelle Bowman, vice-chairman of the Federal Reserve oversight, presented this much more bank-friendly approach to the merger in her first speech since being confirmed in the role this month.
Bowman has committed to minimizing delays in acquisition approvals, as well as making the process more transparent and clear. She also announced plans to remake the “large financial institution evaluation” system. This has become a larger barrier to banking.
Two-thirds of the largest US banks were rated “unsatisfied” by the Fed last year, limiting their ability to make acquisitions. Bowman said that despite many banks meeting almost all regulatory expectations for capital and liquidity, there was a “mismatch” in which many banks have poor ratings and have committed to correcting this.
Michelle Bowman, vice-chairman of the Federal Reserve oversight, has committed to making the acquisition approval process more transparent © Graeme Sloan/Bloomberg
The Fed may also rethink how it currently uses the so-called Herfindahl-Hirschman index to assess market concentration in rural areas, with the aim of opening the door to more transactions between smaller community banks.
“We’re looking forward to seeing you in the process of financial services practices at Washington law firm Mayer Brown,” said Jeffrey Taft, co-head of financial services practices. “There are a lot of small community banks struggling, and many of them have the next generation of senior CEOs who are not interested in running community banks.”
Two other major US banking regulators — the Federal Deposit Insurance Corporation and the office of the Secretary of Currency — have already shown a more cooperative attitude about bank mergers by withdrawing recent guidance that executives said has made transactions more difficult.
“The regulatory windows are wide open,” said Ebrahim Puonawara, bank analyst at Bank of America. “Evidence of a large banking transaction has been released and the market needs to respond positively. If that happens, the floodgates can be opened.”
Regulators showed new openness to the integration by approving Capital One’s $35.5 billion acquisition of Discover Financial in April, sealing off its first major US bank merger for over five years.
“It’s important to be a little more clear than the approval timeline,” Jordan said at a meeting in New York this month, two years after the repetitive delays for bank First Horizon to obtain regulatory approval led to the withdrawal of the $13.4 billion acquisition by Canada’s TD Bank.
Chris Marinac, research director at Janney Montgomery Scott, said it is likely that banks will be consolidated faster in 2026 than this year, as management hopes to move forward with regulatory changes first.
He added that the board can wait, as regulatory reforms are “certified, carried out and perhaps meaningful in the book, so the board knows what the rules of involvement are.”
The two largest consumer banks in the US, JP Morgan Chase and Bank of America, each have a share of more than 10% of domestic deposits, preventing them from winning more without special waiver during the crisis.
However, both JPMorgan and Bofa have put competitive pressure on small banks by actively expanding across the country. Wells Fargo is also looking for growth this month after the Fed lifted its asset cap imposed in 2018 in the “fake account” scandal.
The need to invest rising amounts in new technologies such as artificial intelligence and cloud computing is adding to the incentive to further expand. JPMorgan said it plans to spend $18 billion on technology this year, roughly as much as NASA’s total budget.
“Scale is important because there is scale within marketing spending, within technology budgets and within physical presence,” Bill Demchuk, head of US Bank PNC, told the meeting this month.
“My hope is that over time, this will be a long-term period. This is to see the consolidation of retail shares that will ultimately drive profitability for US commercial banks.”
