After a sluggish 2022–2023, bank mergers are continuing their upswing, which is expected to continue into 2026. 2025 has already seen more than 150 bank deals announced, exceeding the total number of deals in all of 2024, and the combined assets of those deals exceed those of 2024 and 2023 combined. October 2025 alone saw 21 bank deals announced totaling $21.4 billion, the highest monthly deal value since early 2019.
This momentum can be attributed to several factors:
- Scale for Digital Transformation & AI: Banks are pursuing acquisitions to accelerate technology upgrades and digital innovation. By merging, institutions can spread the cost of new fintech and banks can gain access to broader customer data sets via M&A, which can “build out their AI models” and improve digital offerings. In a world of rising tech costs, combining forces is often the quickest path to digital competitiveness. Fintech valuations have cooled from their peaks, making them more affordable for banks. Expect more cross-sector M&A at the intersection of banking and fintech. Traditional banks are eyeing fintech, payments, and specialty finance companies as acquisition targets to import new capabilities. Payment processors and online lending platforms will continue to be top targets for bank M&A in the coming years.
- Capital and Expense Pressures: Industry-wide margin compression and higher capital requirements are prompting consolidation. With interest rates stabilizing (and expected to fall modestly by 2026) and loan growth slowing, many mid-sized banks see M&A as a route to bolster profitability through cost cuts and efficiency. Merging allows for branch overlaps to be eliminated and back-office operations to be consolidated, yielding significant expense savings. It also helps banks meet regulatory capital demands more comfortably by increasing their earnings base. Notably, banks with under $10 billion in assets, which still make up the majority of U.S. institutions, remain plentiful, and there is no shortage of potential sellers over the coming years. Scale has become critical for navigating both rising compliance costs and investments in innovation.
- Core Deposit Growth and Market Expansion: Another key driver is the pursuit of new deposit markets and customers. Many regional and community banks are using M&A to enter high-growth geographies or customer segments that would be hard to penetrate organically. Acquirers are targeting banks with strong local deposit franchises to help replace expensive wholesale funding and improve their core deposit base. This need for deposit growth is especially acute after the 2023 regional bank turmoil, which taught banks the importance of stable deposit funding.
- Valuation Trends, Capital & Credit Conditions: Bank valuation multiples and deal pricing have rebounded from last year’s lows. The median price-to-tangible book value has improved significantly, and buyers recognize that bank stocks remain historically cheap relative to broader markets, allowing disciplined acquirers to pay reasonable prices for strategic targets and still realize significant cost synergies. Now that interest rates have improved (or have moved lower), valuation gaps between buyers and sellers have narrowed, though buyers are still cautious around CRE portfolios and are performing more significant diligence on loan portfolios.
- Improved Regulatory Environment: The post-2024 regulatory outlook is notably favorable for bank M&A. Industry-friendly appointments and policy rollbacks have created a window in which deals can be done with greater certainty of approval – especially for small and mid-sized banks that have been waiting on the sidelines. Under President Biden, many large bank deals languished in limbo as agencies signaled tougher scrutiny. The change in attitude from the Biden era is marked: federal agencies are clearing deals faster and with fewer roadblocks, especially for mid-sized transactions. That attitude culminated in the rescission of the 2024 merger review guidelines and the restoration of expedited review and the use of the streamlined business combination applications. As a result, recent bank mergers have been approved in less than half the time similar deals took under the previous regime. The FDIC, OCC, and to some extent, the Federal Reserve are processing applications more efficiently and appear willing to green-light mergers that expand banks’ footprints or capabilities, so long as obvious issues like severe CRA or antitrust problems are absent. Fair lending considerations are also softening.
In May 2025, the President issued an Executive Order limiting the use of the “disparate impact” doctrine in enforcing fair lending and equal credit laws. Similarly, Basel III endgame reforms are likely to be significantly watered down or permanently on hold, which will give large banks more flexibility to consider mergers.
For bank executives and investors, these trends mean M&A should be on the strategic agenda. Here are the key implications and what boards and deal teams should anticipate in the next 12–24 months:
- Resurgent Deal Pipeline, Be Prepared: Deal pipelines are crowded, and boards should be prepared for inbound offers and discussions. Banks with strategic gaps are scouting targets, and conversely, underperforming banks are increasingly open to selling. Regional and community banks in particular may find themselves the target of unsolicited inbound offers. This means more banks will find themselves in M&A talks, whether as buyer or seller. Directors need to regularly review the bank’s standalone plan versus opportunities to merge, so they can respond quickly if an attractive deal arises. For those open to selling, ensure the bank is “deal ready” e.g. has clean audits, no major compliance skeletons, and an articulated growth story to maximize valuation.
- Time Window and Sense of Urgency: The current pro-merger regulatory stance may not last indefinitely. There is a political window through 2026–27 during which approvals are relatively easier. Boards should factor this into timing: if a strategic merger or sale is part of your long-term plan, it could be advantageous to execute sooner rather than later. The 2025–2026 period is seen as an opportune time to merge under friendly regulators; by 2027–2028, election dynamics will begin to introduce uncertainty again. For acquirers, this may mean accelerating due diligence and lining up financing now, so that deals can be announced and submitted for approval while the climate is favorable.
- Regulatory Strategy and Due Diligence: Even in a lenient environment, regulatory due diligence remains paramount. Boards and deal teams should not get complacent about approval criteria. Before signing a deal, scrutinize the target’s CRA record, fair-lending history, BSA/AML compliance, and consumer compliance issues. Any red flags in these areas should be addressed (or remediated) in advance, lest they become a sticking point in approval. Preparing a robust “public benefits” narrative explaining how the merger will serve community convenience and needs (new branches, better technology, etc.) can preempt community group objections. Smooth sailing on approvals still requires a strong application package that demonstrates the combined bank will be safe, sound, and serving its communities. Regulators are inclined to approve, so the onus is on the banks to give them the rationale to do so readily.
- Shareholder Expectations and Valuation Trends: In an active M&A market, bank valuations and investor expectations will be in flux. Shareholders of many regional and community banks have seen lackluster stock performance in recent years and may welcome a sale at a premium. If a board is approached by a suitor offering a premium, board members must uphold their fiduciary duties by making a thorough and informed evaluation of the offer, which often involves hiring independent legal and financial advisors to assist the board with its evaluation. Boards need to gauge if their bank’s stock is undervalued. If so, remaining independent might mean facing activist pressure or dissatisfied investors. Conversely, boards of acquiring banks must be disciplined not to overpay.
- Deal Structuring Considerations: Given market conditions, most bank M&A deals in the near term will likely be structured as stock-for-stock mergers to preserve capital, avoid more expensive debt financing, and ensure that sellers participate in the upside of the merger. Boards should also be mindful of the size of the deal relative to the acquirer – regulators prefer smaller transactions that can be digested without risking the acquirer’s stability.
- Integration Planning and Execution: A critical lesson from past bank M&A deals is that integration determines success. Boards should insist that management present a detailed integration plan before deal approval. This includes plans for core system conversion, branch network optimization, personnel and culture alignment, and customer communication. These integrations result in material cost savings, but capturing those savings requires swift action post-merger. As such, deal teams must focus on setting up integration task forces, retaining key talent (to avoid customer disruption), and tracking synergy realization closely. Successful integrations will rebuild confidence that bank M&A creates value, whereas any high-profile stumbles could make shareholders more skeptical of the next deal.
- Risk Management and Due Diligence: A merger should ideally diversify the combined bank’s risks through broader geography, broader industry exposure in loans, or a more diverse deposit mix. Boards should ensure that in any deal, both parties thoroughly examine each other’s loan books for credit quality issues, securities portfolios for interest rate risk and unrealized losses, and off-balance-sheet exposures. The 2023 mini-crisis taught us that things like unhedged bond portfolio losses or concentrated depositor bases can have disastrous consequences. Regulators, though friendly, will still expect that the combined entity has robust risk management for its larger scale. Boards should ask management to conduct stress tests on the pro-forma institution (liquidity stress, capital stress) to be comfortable that the merger doesn’t stretch resources too thin.
- Opportunity for Strategic Expansion: Finally, bank boards should view this period as an opportunity to reshape their franchise for the future. Whether by acquiring or merging, banks can position themselves for long-term trends through scaling up to invest in AI and digital banking, entering new markets with better growth demographics, or acquiring niche capabilities like wealth management, payments, or fintech innovations. Cross-industry deals can be a way to leapfrog years of development.
U.S. bank M&A is entering 2026 with a rare alignment of favorable market conditions and a more permissive regulatory environment, creating a clear window for banks to pursue transformative combinations. Boards and executive teams that proactively evaluate strategic fit, prepare for disciplined execution, and articulate a compelling public-benefits story will be best placed to capitalize on this consolidation cycle. While the current tailwinds may not last indefinitely, banks that act deliberately and early stand to shape the competitive landscape for the decade ahead.
In-depth 2025-288
