Bank M&A May Hinge on Deposit Cap Rule

But in the past two months alone, three large banks acquired weaker banks at the behest of regulators. In September, JPMorgan Chase acquired Washington Mutual, after regulators seized what was the nation's largest thrift. Wells Fargo stepped in last month to seal a deal for Wachovia (WB Quote), besting a Citigroup (C Quote) offer that included federal assistance.

And while not technically a bank, Merrill Lynch (MER Quote) in September agreed to sell itself to BofA. The brokerage firm has several bank subsidiaries underneath it.

Observers expect more M&A in the sector since several dozen large and regional banks have received investments through the $700 billion Troubled Asset Relief Program, or TARP, approved by Congress last month. The $250 billion in preferred equity stakes the government intends to make are aimed at fostering lending, but will no doubt lead to more acquisitions. Indeed, PNC Financial Services (PNC Quote) last month agreed to purchase National City (NCC Quote) after announcing it had accepted a $7.7 billion investment.

"The government doesn't want to ultimately be in a position where it can't encourage two large banks to get together because of this cap," Fitzgibbon says.

In 1994, Congress enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act, which amended the Bank Holding Company Act of 1956, to allow for banks to do business in multiple states under one national charter. As part of the law, banks were restricted to owning a maximum of 10% of deposits nationwide and 30% within states via an acquisition.