Consolidation in the banking sector is heating up again, with the first few months of 2026 on track to match the highest annual volume in seven years.[1] This comes after a few years of challenging conditions and regulatory constraints following several high-profile bank failures. Subsequently, in 2023, the aggregate value for deals in the sector reached a nadir, totaling just 10% of 2021’s $590 billion in assets sold.

But now, the industry is experiencing a significant uptick of bank mergers and acquisitions (M&A) after the change in the US administration last year.

A more favorable regulatory environment and shorter approval timelines will likely drive further deal activity this year and hold significant implications for due diligence processes in the sector.

Today’s investors should study the key M&A drivers in the segment, understand the key trends from a global perspective and adjust to the due diligence implications in light of a rapidly accelerating pace in today’s market.

Backdrop and Key M&A Drivers

With more than 180 deals announced in 2025 and 14 announced in the first two months of 2026, M&A is accelerating in the sector, according to S&P Global. October’s 2025 deal value of $21.4 billion was the highest monthly value since early 2019.[2]

Two sizable deal announcements in 2026 offer a glimpse into the pace and depth of potential M&A activity for the rest of the year. Banco Santander SA’s $12 billion bid for Connecticut-based Webster Financial Corp. is the largest US bank deal since 2021 and followed a $2 billion deal announcement between Prosperity Bancshares Inc. and Stellar Bancorp Inc. just one week prior.[3]

The outlook for further consolidation remains bright and will likely be driven by several trends:

Regulatory openness: Bank-to-bank deals were considered challenging in the years following a series of bank failures in early 2023 that introduced tighter banking regulations and caused some of the largest institutions to increase focus on risk management. Now banking regulators and the US Department of Justice appear more open to “productive and synergistic” mergers that will boost competitiveness and innovation.

Faster approvals: Regulatory easing has led to faster approvals and streamlined applications in the US. Under the new administration, bank mergers are being approved at the fastest rate in 35 years, with the average time lag down from seven months to only four months.[4]

Need for scale: Megadeals are on the rise, marking a shift toward a more aggressive pursuit of inorganic growth as organizations look for scale. US banking M&A hit a multi-year high in 2025 while mega deals are also dominating activity in Asian banking and financial services.

Tech innovation: The sector is likely to see more convergence of banks and fintechs, as banks need to acquire specific technologies, Artificial Intelligence (AI) capabilities, and certain platforms. This has the potential to drive M&A activity, especially among payment companies.

Potential PE activity: While private equity (PE) funds have historically been restricted from investing directly in banks, the Federal Deposit Insurance Corporation is lifting these restrictions, allowing funds to bid on failed banks.[5] While it’s too early for meaningful PE participation in bank deals, this is a developing trend worth watching.

Global Perspective

While the US will most certainly take the lead in propelling banking M&A activity in 2026, deals are also gaining momentum in Asia. In 2025, megadeals worth $129 billion dominated the Asian financial services sector, indicating a growing confidence by investors. And although overall deal making was down slightly, total deal value more than doubled to $150 billion last year.[6]

Banking consolidation will be illustrated by a drive to establish “fortress balance sheets” as banks negotiate regulatory and economic pressures while seeking to boost global competitiveness through strategic acquisitions. There’s also anticipation that PE-led activity will grow as exit markets show signs of recovery and higher valuations.

In Europe, consolidation is being discussed but is not yet materializing at scale, with noted exceptions, such as the approximately €13 billion to €17 billion bid by Banca Monte dei Paschi di Siena SpA’s to acquire Mediobanca SpA. Banks across Europe are sitting on cash, and many thought banking consolidation was overdue; however, many of the flashiest deals have failed or stalled for one reason or another.[7]

Barriers have certainly impacted activity in the region and include countries wanting to retain nationally treasured institutions, legacy concerns from the Eurozone debt crisis, and continued regulatory scrutiny.

For European banking M&A to pick up, two structural issues must be addressed first: greater structural integration within the EU and the development of a capital markets union. The rapid changes in the geopolitical environment could cause the EU to prioritize structural integration efforts. Furthermore, the recent Mario Draghi report on economic competitiveness set out that the EU needs to speed up the integration of its financing landscape to create an environment that facilitates and fosters entrepreneurship and ensure the future competitiveness of the continent.

Due Diligence Implications

More deals and faster timelines have significant implications for M&A due diligence, particularly in the following areas of business:

Credit analysis: While the credit environment has been relatively benign recently, concerns related to private credit and more lenient lending terms create an environment warranting more prudent attention during diligence.

Operational diligence: An emphasis on functional diligence is even more warranted, especially when buyers are evaluating fintech or payments platform deals. Not only does the fit of these technologies and platforms need to be evaluated, but their scalability, growth, and any risk management concerns related to customer concentration, products, services, operational or integration also needs to be assessed.

Quality of earnings: As with operational diligence, accurately assessing the quality of earnings and growth profile of the target is even more important for bank-fintech deals.

Accelerated integration planning: Shorter approval timelines require faster and more aggressive integration planning with teams at the ready long before the acquisition. The condensed timeframe puts even more pressure on teams to get it right to ensure smooth integration, stabilize the business, retain customers and employees, and deliver on the deal thesis.

Value creation: As competition for deals increases and approval timelines shorten, it becomes more imperative to have a comprehensive plan for realizing deal synergies, understanding investments required, developing detailed action plans and budgets, and achieving returns.

Regulatory diligence: Gaining a forward-looking perspective on changing regulations—anticipated or proposed in the future—requires ever-watchful teams who can expertly spot risks in acquisition targets.

AI in diligence: With shorter approvals, AI can significantly enhance evaluations, accelerate the decision-making process and provide a competitive edge in the banking deal landscape. While AI accelerates the review of diligence materials, it is imperative that buyers continue to include humans in the loop to provide their perspectives and experiences to inform decision making, planning, and execution.

Surging Banking Deals Require a Holistic Diligence Approach

Bank-to-bank mergers will have a strong year in 2026 as deal approvals speed up, regulatory restrictions moderate, and banks seek strategic acquisitions to enhance competitiveness. These factors demand more complex and intense due diligence to match the pace of the deal market and ensure a strong plan is in place to achieve synergies and return on investment. The best outcomes will benefit from a holistic approach to due diligence that achieves accurate target assessments while planning and executing rapidly to close deals on a shortened timeline.

How A&M Can Help

Financial service firms and private investors trust the combined strength of Alvarez & Marsal’s Global Transaction Advisory Group and Corporate Transactions Group’s Financial Services practice to drive results and unlock opportunities across all stages of their growth strategies, from deals, disruptions, and distress through to activating growth and creating profitability.

With a network of senior-level, operational, and C-suite professionals globally involved at every step, we ensure real-time communication of critical issues and an intense focus on resolving key deal challenges. Our group’s offering, combined with A&M’s operational, functional, and industry expertise and tax services, maximizes the value of every transaction, performance improvement, and financial restructuring.

[1] https://www.spglobal.com/market-intelligence/en/news-insights/articles/2026/2/bank-m-a-deal-tracker-q1-2026-on-pace-for-highest-value-in-7-years-97780905

[2] https://www.reedsmith.com/articles/us-bank-ma-outlook-for-2026-and-beyond/

[3] https://www.spglobal.com/market-intelligence/en/news-insights/articles/2026/2/bank-m-a-deal-tracker-q1-2026-on-pace-for-highest-value-in-7-years-97780905

[4] https://www.ft.com/content/72c16455-c11c-4e0a-9ddb-882d1a5e7647

[5] FDIC’s Hill: Agency to expand nonbank participation in bidding on failed banks | ABA Banking Journal

[6] https://www.alvarezandmarsal.com/content/download-report-keeping-momentum-asia-financial-services-ma-outlook-2026

[7] https://www.bloomberg.com/graphics/2025-europe-bank-m-a-deals/