Bank M&A May Hinge on Deposit Cap Rule

Federal lawmakers are going to need to do something soon regarding the limits on how much deposit market share banks can take, whether the caps are increased or repealed altogether.

The financial crisis has essentially crippled most major U.S. financial institutions, moving regulators at times to encourage, with the help of federal assistance in some cases, healthier banks to acquire weaker ones.

But laws setting a 10% cap on overall U.S. deposits could stymie further acquisitions for the three largest banks: Bank of America (BAC Quote), JPMorgan Chase (JPM Quote) and Wells Fargo (WFC Quote). Until something is done about the deposit cap, these banks, all of which have recently made significant acquisitions, may not be able to do further opportunistic deals for some time, analysts say.

The moves could leave open potential targets for Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote), both of which recently became bank holding companies and have publicly said that they are looking to garner deposits either organically or via acquisitions.

"Now that you have several banks approaching that 10% limit, my guess is they will lobby to make that change," says Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners. Lawmakers will likely bump up the maximum national deposit share to 12% or 15% of total deposits, giving "plenty of breathing room for all the major players," he says.

Until recently, BofA was really the only U.S. bank in danger of hitting the maximum deposit caps, especially after it acquired LaSalle Bank last year.