Merger activity in the banking industry has been in a deal drought for the past few years. Throughout the first half of 2025, U.S. banks have announced only 78 mergers.

In 2020, the banking sector averaged around one merger or acquisition daily. Fast forward to now, that has slowed to just around two each week. 

This slowdown in M&A activity isn’t due to a lack of appetite for dealmaking but has more to do with the volatility that negatively impacted the sector and the cautionary stance regulators have adopted towards bank consolidation.

During the COVID-19 pandemic, companies and consumers deposited their money in banks to be spent later. Combined with $400 billion in stimulus checks, deposits grew from $13 trillion to $16 trillion in 2020.

As the economy stalled due to reduced spending and investing, the U.S. Federal Reserve lowered interest rates to near-zero to kickstart economic activity. While this initially worked, it created a much bigger problem: soaring inflation.

To combat inflation, the Fed raised interest rates 11 times from March 2022 to May 2023. This high-interest-rate environment prompted investors and depositors to withdraw funds from banks such as First Republic Bank and Silicon Valley Bank, triggering bank runs that resulted in two of the three largest commercial bank failures in history.

As banks got crushed, regulators had to step in to prevent the problem from worsening further. However, this led to the existence of “zombie” banks—ones that still operate but cannot make any loans.

Aside from industry-wide volatility, Biden-era policies have led regulators to adopt a strict stance on banking consolidation, especially among large institutions.

Since 2023, banks that exceeded the $200 billion dollar threshold on their balance sheets had to deal with red tape to get deals approved.

However, policy has begun to pivot under the new administration, as regulators have signaled a willingness to revise review processes with a faster, and more transparent system.

In fact, it looks like the floodgates for M&A activity are about to open again as the largest bank acquisition so far this year was announced earlier this week.

Cincinnati-based Fifth Third Bancorp (FTIB) announced that it would acquire regional bank Comerica for an all-stock deal valued at $10.9 billion. And should the merger push through, this would create the ninth-largest bank in the U.S. with $288 billion in total assets.

Comerica, which is based in Dallas, has over 350 branches across Texas, California, Michigan, Arizona, and Florida. Meanwhile, Fifth Third has 1,100 branches in the Midwest and the South.

This deal comes as Comerica has faced pressure from activist investor HoldCo Asset Management which urged the bank to become part of a larger financial institution. 

The Dallas-based bank has been plagued by cost structure problems and looming compliance costs as it was set to exceed a regulatory threshold of $100 billion in assets. As a regional lender, it was hurt by the bank failures in 2023 which led depositors to move their money to bigger banks.

Should the acquisition move forward, Fifth Third’s shareholders will own around 73% of the new entity while Comerica shareholders will get 27%.

Analysts, bank executives, and dealmakers will keep a watchful eye on this acquisition as it has industry-wide implications.

As it stands, the only way for regional and other midsize banks to compete with the U.S.’ biggest banks is through consolidation, especially when the costs of tech upgrades and regulatory compliance are factored in.

The present administration has championed financial deregulation, giving banks hope that regulators would be less strict on merger approvals.

If the merger pushes through, this could open the doors for a long-anticipated wave of consolidations in the banking sector, which could prove to be rewarding for investors.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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