NEW YORK (Reuters) - Takeover speculation in Northern Trust has revived industry hopes of deals among large U.S. and regional banks, propelling exploratory conversations that could lead to consolidation, according to financial executives and analysts.

Talk of potential mergers and acquisitions among Wall Street banks and large regional lenders has increased in recent weeks in a major shift under the Trump administration after regulators under the Biden administration opposed or blocked big deals, according to three senior financial executives who declined to name specific talks or be identified, citing confidential discussions. 

On Thursday, the Federal Reserve proposed changes to how it evaluates large banks, making it easier for firms to maintain a "well managed" rating by requiring deficiencies across multiple categories before being downgraded. The move could be a boon to bigger bank dealmaking, as firms not considered "well managed" are barred from any acquisitions.

"What we've seen from a regulatory standpoint is a lot more clarity and ... a return to a more permissive environment," particularly for mergers, said James Stevens, a law partner who advises financial institutions at Troutman Pepper Locke. 

Regulators' moves to streamline deal approvals "certainly opened the doors more towards those bigger banks talking about getting together," he said.

The sources said that bank executives in recent weeks have become newly emboldened to consider ambitious plans to buy business units, or even entire companies.    

That increased interest came after BNY approached Northern Trust to express interest in a merger, the Wall Street Journal reported last month, although the target has said it wants to remain independent. Meanwhile regulators approved Capital One's $35.3 billion purchase of Discover Financial Services in April. 

BNY will report earnings on Tuesday alongside JPMorgan, Wells Fargo and Citigroup. The companies will likely be quizzed about their appetite for M&A during analyst calls. 

BNY and Northern Trust declined to comment.

M&A CLIMBING

Dealmakers expect bank M&A activity to climb in the second half of the year. Activity has been broadly flat this year, with 57 deals struck in the first five months of 2025, compared with 56 a year earlier, and was concentrated mostly among smaller lenders, according to data from S&P Global Market Intelligence. 

Major banks seeking selective, or bolt-on acquisitions that add operations such as wealth management, fintech or crypto, will find it easier to get approval from regulators, one of the executives said.

But larger mergers involving entire banks that serve similar geographies are more likely to face government scrutiny, including from antitrust authorities, the executive said.

Regional lenders are more likely to get the green light for transactions, said Tom Michaud, CEO of investment bank Keefe, Bruyette & Woods.

"There is a clear case for gaining scale, and people are realizing this administration gives them the best chance of getting a large deal approved," Michaud said. "So it's better to do it sooner than later," he said, expecting regional lenders to strike deals more quickly than banking giants.

The other three industry executives concurred that deals by so-called super regional banks were most feasible. They cited PNC Financial Services, U.S. Bancorp and Truist Financial as potential participants.

Truist and U.S. Bancorp declined to comment.

PNC CEO Bill Demchak said in June that he expected consolidation in retail banking to boost industry profits.

Meanwhile, Gunjan Kedia, who became U.S. Bancorp CEO this year, said in February that it was focused on organic growth and ruled out M&A "for now."

For the six biggest U.S. lenders deemed by regulators as global systemically important banks, or GSIBs, there are bigger hurdles.

JPMorgan Chase and Bank of America, the first and second-largest lenders in the U.S., each hold more than 10% of the nation's deposits and are capped from buying companies that store them. Still, JPMorgan purchased several fintech firms and BofA bought loan portfolios in recent years.

Wells Fargo has only recently got out from under key regulatory punishments, while Citigroup is still under regulators' orders to fix widespread deficiencies in risk management. That leaves Morgan Stanley and Goldman Sachs as the largest lenders that could pursue the most traditional M&A deals, the three industry executives said.

All the six large banks declined comment.

The Federal Reserve's new Vice Chair for Supervision, Michelle Bowman, is expected to facilitate deals because of her support for lighter regulation, the three industry executives said.

Regulators are generally going to be open to large institutions expanding, but the approval process will remain extensive, said Katie Cox, a consultant CoxFedLaw who previously served as an M&A expert at the Fed.

Participants need to show they meet financial and compliance ratings and hold public consultations, Cox said. The process takes at least a year and could probably be sped up to nine months, she added.     

Regulators would also weigh how combining banks would affect financial stability, and "that's going to be the problem for the G-SIBs -- if the acquisition of any target is going to exacerbate their current financial stability position in the U.S. markets," she said. "And then there's the competition and antitrust rules."

Bankers point to a 2023 example as a cautionary tale of the Biden era's skepticism toward deals. After more than a year of waiting for regulatory approvals, Toronto-Dominion Bank called off its $13.4 billion takeover of First Horizon , triggering a near 40% fall in the latter bank's shares.

Industry executives were still watching BNY, which also has GSIB status, to see whether it will continue to pursue Northern Trust or set its sights elsewhere. The approach is being seen as a test case for the administration's openness to GSIB deals, which could reshape the industry because they involve the biggest and most complex institutions, the three executives said.