Trump's Grip Tightens on Banking and M&A: Deregulation and Deal Activity in 2025

As President Donald Trump begins his second term, the financial services industry braces for a shift in regulatory tone, priorities, and enforcement. With a Republican majority in both chambers of Congress and a pro-market approach from the new administration, the banking and M&A landscapes are set to experience significant changes. This article explores the potential impact of Trump's deregulatory agenda on the M&A market, focusing on deal approvals, regulatory scrutiny, and corporate cash reserves.



Deregulation and Deal Approvals

Trump's first term was characterized by a push for deregulation, which is expected to continue in his second term. This could lead to a more lenient regulatory environment, with regulators being more open to approving larger deals compared to the Biden Administration. LionTree's Ehren Stenzler noted that "deals that were not perceived to be actionable two months ago are back on the radar again" (Source: Bloomberg, December 17, 2024). This shift in regulatory approach could lead to an increase in deal activity, particularly for larger transactions that may have been discouraged under the previous administration.

Faster Deal Approvals and Reduced Regulatory Burden

With a more business-friendly administration, deal approvals could be expedited. This would be beneficial for corporations looking to engage in M&A activities, as they would face fewer hurdles and delays in getting their deals approved. Additionally, Trump's second term is expected to bring about a reduction in the regulatory burden on businesses, which could encourage more M&A activity. EY's chief economist, Gregory Daco, stated that Trump's administration is set to continue its push for deregulation across various sectors and existing governmental agencies, aiming to lighten the regulatory load on both the economy and businesses (Source: EY, 2025).

Increased Deal Activity and Valuations

The combination of a more lenient regulatory environment, faster deal approvals, and reduced regulatory burden is likely to result in increased M&A activity. Dan Grabos, the head of Barclays's M&A business in the Americas, expects a robust 2025 with transactions across the spectrum, including transformational deals of $10 billion-plus and more midcap activity (Source: Bloomberg, December 17, 2024). This increased deal activity, coupled with a reduction in corporate tax rates, could lead to higher valuations for companies as they seek to deploy their cash reserves through acquisitions.

Corporate Cash Reserves and Tax Savings

A reduction in corporate tax rates under President Trump's second term is expected to result in corporations having more capital at their disposal, potentially prompting them to engage in more acquisitions with their tax savings. This is supported by the experience during Trump's first term, when the Tax Cuts and Jobs Act in 2017 cut the corporate-tax rate, triggering substantial growth in corporate cash reserves and stimulating the M&A market. According to a study by the Federal Reserve Bank of St. Louis, the tax cuts led to a significant increase in corporate cash holdings, with the average cash-to-assets ratio for S&P 500 firms rising from 10.7% in 2016 to 12.7% in 2018. This increase in cash reserves, combined with a more accommodative monetary environment and a Republican majority in both chambers of Congress, is expected to create a favorable environment for M&A activity in 2025.

In conclusion, President Trump's second term is set to bring significant changes to the banking and M&A landscapes, with a more lenient regulatory environment, faster deal approvals, and reduced regulatory burden. These factors are likely to result in increased deal activity, higher valuations, and a surge in M&A transactions across various sectors. As corporations seek to deploy their cash reserves through acquisitions, the M&A market is poised for a robust 2025, with transformational deals and midcap activity expected to drive growth.