FIG’s Banks & Depositories relationship management team offers an outlook and insights for U.S. regional and community banks in the areas of capital markets, deposits and liquidity, regulations, and banking system consolidation.

A Look Back at 2023

At the end of 2022, FIG signaled that it might be a challenging year ahead for the banking industry, announcing the word of the upcoming year (2023) would be grit.

The business predicted an outlook of a slower economy, lower levels of liquidity, and perhaps reckonings in select pockets of credit markets, which would require banks to muster up a good amount of fortitude and grit, figuratively defined as courage, resolve, and perseverance through adversity.

“I expect more volatility as the effects of QT, global economic slowdown, and rate increases work themselves out through the year,” said Sheryl Jordan, EVP and head of FIG Banks & Depositories. “As for our business, our technology investments in the platform will result in more analytics and trade strategies for our clients. This in turn will aid our mission to help our bank clients to be resilient and strong so they can best support their clients and communities.”

In retrospect, this prediction was prescient. The past year, punctuated as it was by the largest bank failures since the 2008 financial crisis, was one for the books that called for a lot of grit from bankers in the U.S. Moving into 2024, banks will continue to need both to survive and thrive in the year to come.

2024 Outlook: Debt Capital Markets for U.S. Regional & Community Banks

New issue bank debt in 2023 was lower, down by 26% and 32% in number of transactions and deal value, respectively, as of December 20, 2023 versus full year 2022. U.S.-based global and large regional bank issuers have led the way for refinancing and new issue bank debt, commendably maintaining spreads in tight ranges through otherwise choppy conditions.

Of the 494 completed and announced non-convertible debt transactions year-to-date, only a handful were issued by banks under $100 billion in assets. Higher refinancing rates and significantly lower institutional investor appetite for bank risk have dampened new issue activity by smaller regional and community banks since the first quarter, although it’s only a matter of time until callable debt that converts to higher-for-longer floating rates and lose capital treatment will get them off the sidelines.

In preparation for more favorable market conditions, PNC FIG Advisory, a part of PNC Capital Markets LLC (PNCCM), is actively advising banks and depositories about options in raising capital in the private placement and public capital markets. Meanwhile, FIG Advisory expects to see continued volatility in community and regional bank debt in the secondary market as higher deposit costs, lower NIMs, and increasing AOCI (all other comprehensive income) remain as headwinds to the industry. Although nowhere close to 2020-2021’s investor demand levels, there has been an uptick in banks dipping their toes back into secondary bank sub-debt as loan growth has slowed in some markets and double-digit yield profiles have provided a necessary boost to NIM. Further, there is continued interest from traditional equity-focused investors as bank debt offers the ability to invest higher in the capital structure while achieving equity-like returns in the current market.

2024 Outlook: Deposits & Liquidity

This year’s bank failures, led by Silicon Valley Bank (SVB), reminded the industry once again that quality of deposits (plus loyalty of depositors), sufficient levels of on-hand liquidity, and ready access to contingent liquidity in an unstable, rate-volatile period matter most of all. It is an era of highly interconnected depositors with digital access to their money nearly 24x7 that exposed the vulnerability of banks with elevated levels of uninsured deposits to faster bank runs.

Banks will continue to drive down uninsured deposits, which peaked at $8.4 trillion (48% of total deposits) in Q4 2021 down to $6.9 trillion (41% of total deposits)  as of the second quarter of 2023. Deposit acquisition, management, and reporting are and will continue to be subject to higher costs and greater standards of transparency.

On-hand liquidity has doubled to nearly tripled on most banks’ balance sheets. Contingent liquidity is critical now more than ever, with supervisory focus on evaluating the ready accessibility, diversified sources, and dependability of wholesale funding markets.

On trend, banks are increasingly looking to non-core loans as means of generating liquidity. To assist in that effort, PNC Capital Markets Group launched PNC Asset Exchange, a digital marketplace for trading loans and credit assets among bank and non-bank financial institutions, asset managers, and private credit investors.

2024 Outlook: Regulations

Banking is a highly regulated industry because rules, regulations, and the industry participants’ compliance with them is intended to instill the confidence and trust that convince people and businesses to deposit their money with banks. The March bank failures rocked the system, and regulators responded by setting higher standards of capital and liquidity that could re-instill confidence in the system.

The proposed Basel III Endgame has banks on the defensive, arguing that reserving regulatory capital arising from more precise and transparent asset risk-weighting measures would not have prevented the fall of SVB. Instead, intended consequence or not, it may further cramp banks’ ability to lend and compete with non-bank lenders that are increasingly becoming the lenders of choice in C&I and CRE markets and whose credit funds and investment vehicles are, consequently, funded by banks.

Liquidity rules such as the Liquidity Coverage Ratio, another Basel III requirement for large banks with assets of $250 billion and above to hold liquidity in the forms of cash and highly liquid assets to fully cover cash outflows for at least 30 days, are becoming best practices at banks with assets below the minimum threshold.

2024 Outlook: Banking Industry Consolidation

As of the second quarter of 2023, there were 4,645 FDIC-insured commercial banks employing roughly 2.1 million people and managing balance sheets with $23.4 trillion in loans and $18.6 trillion in deposits. It’s an industry operating at the very core of the U.S. economy, and it is one that is arguably overdue for structural intervention.

Mergers and acquisitions (M&A) activity has slowed drastically since the COVID-19 pandemic. Industry consolidation amounted to ~250 bank deals annually for most of the 20+ years prior. In contrast, M&A activity is relatively anemic with 96 announced deals. The current higher interest rate environment’s impact on asset valuations and capital render “merger math” trickier alongside greater scrutiny in selling banks’ quality of deposit franchises and loan portfolios.

Stabilization of interest rates, preferably a long pause and cuts; clarity in economic conditions and outlook; a return of private equity investors; more FinTechs looking for deposit franchises; and banks’ ability to adjust and comply to modified regulations, such as the recently finalized CRA regulatory framework, will be some of the key drivers to bank M&A deals in the coming years. For banks, it’s a test of survival of the fittest, with industry consolidation predicted to accelerate at a pace greater than the average annual rate of decline of 3.5% between year-end 2007, with 8,534 banks, and roughly 4,600 banks in 2023.

Ready to Help 

At PNC and PNCCM, we combine a wide range of products and advisory expertise to financial institutions across the country to help them meet their operational and strategic goals. Contact us to learn more.


  1. 2023 S&P Global Market Intelligence, DCM – non-convertible debt transaction statistics
  2. 2023 S&P Global Market Intelligence, FDIC Statistics – Quarterly Banking Profile data
  3. FDIC Statistics – Quarterly Banking Profile data

Additional Disclosure:

FINRA BrokerCheck

Check the background of PNC Capital Markets LLC on FINRA's BrokerCheck.
Learn More »