US Banking Sector Poised for New Wave of M&A Activity, Research Finds

As recession fears fade and regulators ease rules, analysts expect banking M&A activity to accelerate in the second half of this year.

UBS, Citibank, Morgan Stanley, BlackRock, JPMorgan Chase, and Goldman Sachs signs, in a combination file photo from Reuters archive. Reuters

Following the near collapse of the U.S. housing market and the financial crisis of 2008–2009 that triggered the Great Recession, merger and acquisition (M&A) activity in the banking sector surged after a record number of banks insured by the Federal Deposit Insurance Corporation (FDIC) failed between 2008 and 2013.

A June 9 research report from Wall Street investment banking giant Morgan Stanley suggests that the U.S. banking sector may now be entering a new wave of M&A activity as fears of a recession dissipate and regulators take a more favorable stance.

This represents a turnaround from the COVID-19 pandemic environment in 2021, when U.S. banking M&A deals fell to 100 to 150 on an annual basis from a historical average of 200 to 300 per year, because of stricter regulations.

“We believe bank M&A would have already picked up had it not been for the elevated uncertainty brought about by the recent tariff announcements,” Manan Gosalia, Morgan Stanley’s head of U.S. Midcaps Banks Research, said.

“With several ongoing tariff negotiations reducing macroeconomic risks, deal activity should begin to pick up in the second half of this year.”

According to FDIC data compiled by The Epoch Times, nearly 500 U.S. banks failed between 2008 and 2013, resulting in approximately $73 billion in losses to the Deposit Insurance Fund.

Among these failures was IndyMac, which collapsed in June 2008 with losses of about $12 billion, making it the most expensive failure in FDIC history at the time. In addition, Washington Mutual, with $307 billion in assets, failed in September 2008, marking it as the largest failure in FDIC history.

Although these and other large banks failed, most of the institutions that collapsed were community banks with assets of less than $10 billion, often situated in areas of the country where the subprime mortgage crisis and the recession affected real estate financing more severely than in other regions. While only 25 banks failed in 2008, their combined assets totaled a record $373.6 billion.

In 2009 and 2010, 140 banks and 157 banks, respectively, landed on the nation’s notorious “Fail Bank” list and entered FDIC receivership. However, the total asset volume of failed banks in those years dropped to $170.9 billion in 2009 and $96.5 billion in 2010. From 2015 to 2017, fewer than 10 banks failed each year, and there were no failures in 2018.

During the same period, the Federal Reserve Bank of New York’s Liberty Street Economics blog reported that U.S. banks shut down 4,821 branches between 2009 and 2014, resulting in a 5 percent decrease in the total number of branches. This led to the creation of banking deserts in both urban and rural communities across the country.

After a four-year pause from 2015 to early 2019, U.S. bank branch closures resumed during the COVID-19 pandemic, leading to a further 5.6 percent drop in branches—from 96,104 in late 2019 to 90,691 by mid-2023—according to a 2024 Philadelphia Fed report.

These losses varied by bank type, as regional banks with assets between $10 billion and $50 billion, along with very large banks holding assets of $50 billion or more, faced a steeper decline in their 2019 branch counts, decreasing by 11 percent and 12.6 percent, respectively.

According to Morgan Stanley, the number of U.S. banks has dropped by 75 percent over the past 40 years. Yet, the banking industry remains one of the world’s most fragmented, with 4,487 banks as of the end of 2024—most holding assets of less than $10 billion.

“Small banks account for most of the M&A activity across the industry, indicating that there is still no shortage of potential sellers over the coming years,” Gosalia said.

“As a result, consolidation will remain a fundamental theme for the industry given the numerous benefits of M&A.”

The Morgan Stanley report noted that banks are using M&A activity to gain access to new markets and capabilities, expanding their regional footprints and larger customer data sets to build out their financial technology and artificial intelligence models.

“Investments in technology, product, branches, and brand are key to growing core deposits, and scale allows banks to spread these investments over a broader base of revenues,” Gosalia said.

Gosalia noted that in addition to a lower overall deal volume, acquisitions of U.S. banks with assets exceeding $50 billion have become rare.

Analysts attribute this trend to stricter merger review standards established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which created a regulatory distinction between banks with assets above and below $10 billion.

Now, he said, regulators under the new administration are indicating that they will be more flexible. For the first time since the Great Recession, federal banking regulatory agencies, such as the FDIC and the Office of the Comptroller of the Currency, are easing rules for the industry, with some of them making public statements in favor of M&A deals.

Meanwhile, Bank of America analyst Brandon Berman told The Epoch Times that the number of announced bank M&A deals through May has remained stable, although the average deal value has decreased by 20 percent compared to the same period in 2024.

Citing the more relaxed regulatory environment mentioned by Morgan Stanley, Berman also expects to see a pickup in the M&A deal volume in the second half of 2025.

“We don’t disagree, but it’s difficult to predict timing,” Berman said in a June 10 research report provided to The Epoch Times.

“Reasons for M&A haven’t changed, and peak policy uncertainty has receded. The more accommodating regulatory environment is already leading to faster deal approvals.”

Berman and the Bank of America Global research team also said they believe that potential acquisition and takeover targets are mainly small to regional banks, with assets ranging from $15 billion to $45 billion.

Based on current FDIC data, there are 46 small- and mid-cap U.S. banks that have those “desirable takeover traits,” Berman said.