The U.S. banking industry is experiencing the craziest "mutual support" in history. Who can challenge JPMorgan Chase and Bank of America?

Under the dual impetus of a loose financial environment and relaxed regulatory policies, the U.S. banking industry is experiencing a historic wave of consolidation. In the face of the long-standing absolute dominance of giants like JPMorgan Chase and Bank of America in the market, regional banks are attempting to expand their scale through aggressive mergers and acquisitions. This not only reshapes the competitive landscape of the U.S. financial industry but is also seen as a key step in enhancing the stability of the financial system.

According to Bloomberg, the latest transaction dynamics highlight the urgency of this trend. PNC Financial Services Group recently completed a $4.1 billion acquisition of FirstBank of Denver, while Fifth Third Bancorp is about to finalize a $10.9 billion acquisition of Dallas-based Veritex Holdings. These transactions are concentrated in rapidly growing regions such as Texas and Colorado, demonstrating the banks' strategic intent to quickly seize high-growth markets through mergers and acquisitions.

This wave of mergers and acquisitions has received direct support from policy levels. Under the Trump administration, regulatory agencies, including the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), have relaxed restrictions and reviews on transactions, and the Department of Justice's review process has also been downplayed. Meanwhile, after years of a high-interest-rate environment and low credit losses, many U.S. banks have excess capital, coupled with high stock prices, making it more attractive to use stock as a means of payment for acquisitions.

For investors, this means that the valuation logic of the banking industry is changing. Analysts at Jefferies point out that a series of regional lending institutions, such as M&T Bank, Citizens Financial Group, and KeyCorp, have become "ripe for picking." Even more noteworthy for the market is whether Wells Fargo, having finally shed the regulatory constraints of asset caps, will return to the M&A battlefield, which will become a key variable in determining the future distribution of market share.

Dual Drivers of Regulatory Relaxation and Capital Advantage

The consolidation of the U.S. banking industry is considered not only an "inevitable trend" but also "long overdue." The U.S. has over 4,000 banks, and if credit unions and other institutions are included, this number doubles. However, the market structure is extremely imbalanced: the three giants, JPMorgan Chase, Bank of America, and Wells Fargo, control over 30% of household deposits in the U.S., while the rest are numerous followers with market shares in the single digits.

The current financial environment provides perfect conditions to break this pattern. In addition to the regulatory relaxation brought by the Trump administration, the financial condition of the banks themselves also supports mergers and acquisitions. As interest rates have not quickly declined, and long-term yields reflect the White House's determination to stimulate the economy, the short-term profit outlook for banks remains strong.

More importantly, mergers and acquisitions have become a necessary option for the survival of small and medium-sized banks. With high technology investment and compliance costs, JPMorgan Chase's annual technology budget even exceeds the total revenue of most banks. Bank of America has also invested billions of dollars. In this "winner-takes-all" environment, if smaller competitors cannot keep pace, they face the risk of being completely swallowed by the giants

Branches and Deposits: An Insurmountable Moat

Acquiring deposits is not only the core business of banks but also their biggest challenge. In the current environment, it is nearly impossible to achieve significant deposit market share growth from retail customers without acquisitions. One of the most notable cases of deposit share growth in the past decade was the merger of BB&T and SunTrust in 2019, which formed Truist Financial. These two banks, which each originally held less than 1.5% of the deposit share, became the second-largest super-regional bank with over 2.5% share after the merger.

Surprisingly, even in the digital age, physical branches remain crucial. Since launching its expansion in 2018, JPMorgan Chase has opened 1,000 new Chase branches. PNC's head of retail banking, Alex Overstrom, stated that although products can be sold digitally, in markets with physical branches, the number of products sold to each customer is six times that of branchless markets. PNC's acquisition of FirstBank has brought its previously hoped-for growth target forward by ten years.

Similarly, Tim Spence, the 47-year-old CEO of Fifth Third, has shown a preference for traditional expansion methods. In addition to acquiring Comerica, the bank plans to open 150 new branches in Texas and launch a large-scale postal marketing campaign to attract new customers.

A New Justification for Financial Stability

Market concerns about bank mergers often come with worries about "too big to fail," but this may overlook the current realities. Currently, the U.S. economy is highly exposed to the risks of a few super-large banks. Establishing a group of nationally competitive "super-regional banks" may actually help enhance system stability.

Compared to global giants deeply involved in capital markets and international payment flows, these super-regional banks, even as they grow in size, maintain relatively simple and focused business models. Although they have investment bankers and have increased lending to non-bank financial institutions like private credit funds, their complexity and interconnections remain lower than those of top giants. Having a more diversified top-tier bank hierarchy means that when a large bank encounters difficulties, the market will have more large lending institutions available as alternatives, and even extend a helping hand if necessary.

Who is the Next Target?

With the merger gates opening, market attention is focused on potential acquirers and targets. In addition to the aforementioned PNC and Fifth Third transactions, U.S. Bancorp and PNC acquired Union Bank and BBVA SA's U.S. operations a few years ago, respectively. Although the market share increases were limited, they demonstrated a continued willingness to integrate.

Currently, the biggest variable is Wells Fargo. After a series of scandals and regulatory restrictions, its share of the household deposit market has fallen to 7.7%, well below the historically obstructed 10% threshold. Most of the lost share has been taken by JPMorgan Chase Wells Fargo CEO Charlie Scharf although publicly stating that there is "no trading pressure," also admitted that he would consider any reasonable business opportunities. With regulatory easing, this once-mighty giant may be looking for opportunities to return to the top