Key Drivers and Opportunities
Mergers and acquisitions continue to be a critical strategy for banks aiming to bolster their market presence and operational efficiency. The United States has 4,500+ banks, 4,000+ credit unions, and a large number of Fintechs/other non-traditional financial institutions providing services to the U.S. market. Given the sizable number of market participants and an easing regulatory outlook, we expect to see a surge in banking merger and acquisition (M&A) activity as we look ahead towards 2025 and beyond.
Softening in Regulatory Burden
The FDIC recently approved a proposal to rescind a 2024 statement of policy on bank mergers imposing increased regulatory scrutiny for large bank mergers.1 Under the previous policy, banks seeking mergers that resulted in firms with over $50 billion in assets would face public hearings and feedback. Mergers creating banks larger than $100 billion in assets would undergo “heightened financial stability analysis." Per the FDIC, “[this] proposal will reinstate, on an interim basis, the Merger Policy Statement that was in effect prior to 2024 as the agency conducts a broader reevaluation of its bank merger review process.” This regulatory rollback signals a willingness to allow increased M&A activity.
Pent-up Demand
The banking sector has witnessed periods of M&A stagnation due to economic uncertainties and an unfavorable regulatory environment. These factors have led to a pent-up demand for strategic growth initiatives. With an easing regulatory environment and the potential for lower interest rates in 2025, banks are looking to expand operations, acquire new customers, and enter new markets. Bank M&A activity in 2024 showed a slight bounce back from the historically low transaction volume in 2023. 2025 is already off to a strong start, with 18 transactions worth a total of $986 million announced through the first two months of the year, a ~ 50% increase in transaction value over the same period in 2024. The increase in transaction value may serve as an early indicator of a growing appetite for M&A activity moving forward.
*As of Mar 3, 2025. Source: S&P Global Market Intelligence
Deposit Pressures
Mid-sized banks face continued deposit flight to larger institutions and higher cost funding due to competition from money market funds, Fintechs, and Treasury alternatives. Acquiring institutions with a strong existing deposit base allows banks to enhance their liquidity positions, gain access to a more stable deposit base, and fund growth initiatives. This expansion not only strengthens financial stability but also provides a broader platform for offering diverse financial products. The ability to cross-sell to a larger customer base can significantly boost revenue streams and market share.
Technology Synergies
In an era defined by rapid technological advancements and increasing cybersecurity threats, the ability to invest wisely in technology and security is paramount. M&A can serve as a catalyst for institutions to achieve economies of scale in these critical areas. By combining resources and expertise, banks can spread the costs of technology investments and security measures over a larger asset base, making essential upgrades and innovations more affordable.
The integration of technology has become a cornerstone of modern banking operations. As banks strive to keep pace with rapid technological advancements, M&A offers an avenue to acquire innovative capabilities and digital expertise. By merging with tech-savvy institutions, banks can enhance their digital offerings, improve customer experiences, and foster innovation.
Reduced Compliance Costs
One of the primary motivations for increased M&A activity in the banking sector is the potential to reduce compliance costs. Mid-sized banks are especially caught in a difficult spot: large enough to attract heightened regulatory scrutiny but not big enough to easily spread regulatory costs like their larger competitors. Merging with or acquiring another institution can enable banks to streamline these processes, leverage existing compliance infrastructures, and achieve economies of scale. This reduction in overhead not only enhances profitability but also allows institutions to allocate resources more strategically.
New Entrants
In recent years, a noteworthy trend has emerged in the financial sector: credit unions increasingly acquiring banks. This shift is driven by a desire to expand their service offerings, geographic reach, and member base. According to American Banker,2 2024 saw 22 credit unions enter deals to acquire banks, doubling the total of 11 such deals in 2023. By acquiring banks, credit unions can integrate broader financial services typically outside their traditional scope, such as commercial lending and wealth management.
Risks and Challenges
While banking M&A presents numerous opportunities for growth and expansion, it also entails a range of risks and challenges that institutions must carefully navigate to ensure successful outcomes.
Cultural Differences
The success of an M&A transaction hinges on the cultural alignment between the merging institutions. Differences in corporate culture, values, and operating styles can lead to employee dissatisfaction, productivity loss, and operational inefficiencies. As Financier Worldwide notes, “The key to successful integration lies in understanding and respecting these differences, and in developing a strategy that allows both cultures to thrive.”3 To address this challenge, banks must develop proactive cultural integration strategies that foster open communication, mutual respect, and a shared vision. This approach may include conducting cultural and change-readiness assessments, fostering an understanding of cultural norms, establishing clear communication channels, and developing and executing a comprehensive culture and change management plan to retain key talent, ensure a smooth transition, and maintain employee morale.
Third-Party Risk Management
In M&A transactions, the integration of third-party relationships can be particularly complex. Banks often rely on a network of vendors and partners to deliver services, and during a merger or acquisition, these relationships must be carefully evaluated. This process requires thorough due diligence to assess potential risks, ensure continuity of service, and maintain regulatory compliance. It also involves aligning contract terms, service level agreements, and performance expectations to avoid disruptions and maintain operational efficiency.
Overexposure to Certain Asset Classes
M&A activity may lead to increased concentration and overexposure to specific asset classes, which can pose a financial risk if these assets underperform. This risk is particularly pronounced in sectors experiencing rapid change or facing economic headwinds. To mitigate this risk, banks must conduct comprehensive asset evaluations, stress test their portfolios, and align their holdings with their strategic objectives. This may involve rebalancing their portfolios, divesting non-core assets, or implementing hedging strategies to manage potential losses.
Technology Migrations
Technology integration is a critical aspect of M&A transactions, particularly in the banking sector, where technology plays a central role in operations and service delivery. The complexities of merging disparate systems and platforms can lead to disruptions in service delivery, data loss, and security breaches. To mitigate these risks, banks must develop meticulous technology migration plans, conduct thorough testing, and invest in robust cybersecurity measures. This may involve establishing a dedicated integration team, conducting phased rollouts, and providing comprehensive training to employees to ensure a seamless transition and minimize disruptions.
Conclusion
The factors driving the anticipated surge in banking M&A activity present both challenges and opportunities. As banks navigate this evolving landscape, strategic M&A decisions will be pivotal in shaping their future by fostering growth and enhancing competitiveness.
How Ankura Can Help
Ankura plays a crucial role in this process by providing expert guidance and tailored solutions throughout the M&A lifecycle. With deep industry knowledge and experience, our experts assist banks in identifying strategic opportunities, conducting thorough due diligence, and managing post-merger integrations. Our comprehensive approach ensures that banks can maximize synergies, mitigate risks, and achieve desired outcomes, ultimately driving successful M&A transactions that align with their long-term strategic objectives.
1. "FDIC Board of Directors Approves Proposal to Rescind 2024 Bank Merger Policy," FDIC, https://www.fdic.gov/news/press-releases/2025/fdic-board-directors-approves-proposal-rescind-2024-bank-merger-policy
2. Daniel Wolfe, “How many credit unions acquired banks in 2024?”, American Banker, https://www.americanbanker.com/creditunions/list/how-many-credit-unions-acquired-banks-in-2024-an-industry-m-a-analysis
3. Fraser Tennant, "Culture clashes in M&A: new perspectives," Financier Worldwide, https://www.financierworldwide.com/culture-clashes-in-ma-new-perspectives
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© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
