When Donald Trump won the presidency in November 2024, the banking sector buzzed with anticipation. The incoming administration promised a regulatory reset that would, in theory, unleash a wave of consolidation among America’s 4,500+ banks. Yet, three months into the new administration, the expected merger boom has failed to materialize.
The Deregulation Promise
Treasury Secretary Scott Bessent made the administration’s position clear in a March 6 speech to the Economic Club of New York: “Productive and synergistic mergers are often slowed due to immaterial supervisory issues.” His comments echoed a persistent complaint from the banking industry that Biden-era regulators had created unnecessary obstacles to consolidation through overly rigid supervision.
The Republican-led Federal Deposit Insurance Corporation (FDIC) moved quickly to address these concerns, announcing on March 3 the reinstatement of earlier, less stringent guidelines for bank merger reviews. This decision effectively dismantled the stricter framework implemented during the Biden administration.
Randy Benjenk, co-chair of financial services at law firm Covington & Burling, described the Biden-era guidelines as “a significant departure from historical practice” and welcomed their rescinding as “an important step in returning certainty to the industry.”
Why Banks Remain on the Sidelines
Despite these encouraging signals from Washington, major financial institutions continue to approach potential mergers with extreme caution. Industry experts point to several factors keeping deal activity subdued:
1. Market Volatility and Economic Uncertainty
“The slowdown in deals which we have seen has been caused by a whole host of things,” explains Bill Burgess, co-head of financial services investment banking at Piper Sandler. Chief among these is persistent market volatility and broader economic uncertainty.
2. The Interest Rate Problem
The Federal Reserve’s aggressive interest rate hikes have created a significant obstacle to bank consolidation. Rising rates have caused banks to accumulate substantial paper losses on their securities portfolios. In a merger scenario, these theoretical losses would become actual losses on the balance sheet—a financial hit few institutions are eager to absorb.
Jason Goldberg, an analyst at Barclays, notes: “Over time, I think unrealized losses will decline and deals will come back. The industry is ripe for consolidation.” But for now, these paper losses remain a significant deterrent.
3. Regulatory Limbo
While the administration has signaled its deregulatory intentions, the financial regulatory landscape remains in flux. Key agencies including the FDIC and Office of the Comptroller of the Currency are currently being run by interim leaders, creating uncertainty about future policy directions.
Moreover, according to a recent report from law firm Wachtell, Lipton, Rosen & Katz, approximately two-thirds of large U.S. banks remain in what industry insiders call “the regulatory penalty box.” The Federal Reserve has deemed these institutions to have unsatisfactory practices in areas ranging from governance structures to liquidity risk management—issues that would need to be resolved before regulators would approve significant merger activity.
4. Cautionary Tales
Recent history has made banks wary of embarking on acquisition journeys without clear regulatory pathways. Industry executives point to Toronto-Dominion Bank’s failed $13.7 billion acquisition of First Horizon as a particularly sobering example. After waiting more than a year for regulatory approvals, the deal collapsed in 2023. Today, First Horizon is worth only 70% of the original deal price.
Regulators were reportedly reluctant to approve the merger due to concerns about TD’s anti-money laundering compliance. The Canadian bank later paid over $3 billion in penalties to resolve charges of violating anti-money laundering laws—a stark reminder of how regulatory issues can derail even the most strategic acquisitions.
5. The Shadow of 2023’s Banking Crisis
The failures of Silicon Valley Bank and First Republic Bank in 2023 continue to cast a long shadow over the industry. These high-profile collapses heightened regulatory scrutiny and dampened investor enthusiasm for bank stocks, making merger financing more challenging.
The Future of Bank Consolidation
Despite the current hesitancy, industry observers expect consolidation to eventually accelerate, particularly among smaller institutions.
Cheryl Pate, senior portfolio manager at Angel Oak Advisors, which manages $18.4 billion in assets, anticipates “some consolidation among smaller regional and community lenders” but remains “less optimistic about M&A at the super regional level,” which she believes will “still probably going to have a lot more scrutiny.”
For larger banks, the strategic calculus is more complex. Only a few acquisition targets would meaningfully expand their businesses, leading executives to adopt a patient approach. Analysts frequently mention PNC Financial Services, U.S. Bancorp, and Truist Financial as companies likely to pursue expansion when conditions improve.
The Capital One-Discover Test Case
The market is closely watching the proposed $35-billion combination between Capital One and Discover Financial Services announced in February 2024. Still awaiting regulatory approval a year later, this deal is widely seen as a litmus test for the new administration’s commitment to expediting merger approvals.
The outcome of this high-profile case could either reinforce caution or signal a genuine shift in the regulatory environment, potentially catalyzing a long-anticipated wave of bank consolidation.
Merger Activity by the Numbers
The slowdown in bank mergers is reflected in deal statistics. According to S&P Global Market Intelligence, only nine transactions worth more than $1 billion have been announced since March 2022. By comparison, twelve deals exceeding $1 billion were struck during President Biden’s first year in office.
The Road Ahead
The banking industry stands at a crossroads. While the regulatory barriers to consolidation are gradually being dismantled, economic and market realities continue to pose significant challenges. Most industry experts believe that meaningful consolidation will eventually occur—but likely at a measured pace rather than in the sudden wave some predicted following the 2024 election.
For now, America’s banking giants remain in wait-and-see mode, carefully watching regulatory developments and preparing for opportunities while mindful of the substantial risks that accompany any major acquisition in today’s complex financial landscape.
As one banking executive put it, speaking on condition of anonymity: “The door to consolidation may be opening, but we’re going to look very carefully before we step through it.”
This blog post analyzes information from Reuters reporting by David French, Tatiana Bautzer, Pete Schroeder, and Saeed Azhar, published on March 14, 2025.
