Banking in transition: What 2026 holds for credit, liquidity, compliance, and strategic growth

The financial sector is navigating a period of profound change. While hopes for sweeping regulatory relief under the Trump administration were high, the reality has been more nuanced. Some rollbacks have occurred, but operational demands remain high and, in certain cases, have grown more challenging. Institutions must manage four interconnected priorities:

1. Credit: Institutions are holding larger buffers as credit concerns intensify. Zion’s $50 million private credit loss demonstrates the need for proactive strategies, such as stress-testing portfolios and reassessing capital reserves amid market volatility.
2. Liquidity: Now a focal point for risk management and earnings forecasting. Questions around net interest models, repricing strategies, and loan repayment velocity dominate boardroom discussions.
3. Third-Party Risk: Fintech partnerships and API integrations offer growth opportunities but introduce cyber and operational vulnerabilities that demand robust oversight.
4. Compliance: Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) obligations remain non-negotiable, even as agencies streamline enforcement priorities.

Regulatory Rollback: Progress and Gaps

The industry anticipates a lighter regulatory touch, and recent policy changes suggest greater flexibility. However, turning intent into action remains challenging as execution hurdles persist.

• FDIC: Significant rollbacks include easing bank merger requirements, revising broker-deposit proposals, and eliminating reputation risk considerations. However, staffing shortages and training gaps continue to slow implementation.
• Federal Reserve: November’s agenda signals openness to innovation, with pilot programs for digital initiatives and fintech engagement pointing to a more collaborative approach.
• OCC: Merger guidelines have been repealed, and enforcement priorities recalibrated, particularly in fintech spaces.
• CFPB: Once an aggressive enforcer, the agency now faces uncertainty amid funding disputes and leadership turnover.
• NCUA: Regulations have been streamlined, narrowing focus to five key areas: credit risk, balance sheet management, cybersecurity, consumer financial protection, and support for small credit unions and Minority Depository Institutions (MDIs).

Bottom line: Regulatory intent favors flexibility, but operational realities, such as staffing, expertise, and inertia, create friction that cannot be ignored.

M&A Acceleration

Regulators are approving bank consolidations at a speed not seen since at least 1990. Merger approval timelines have dropped from about seven-plus months under the Biden administration to as few as three or four today. The accelerated approval process is influencing deal strategies and could ignite a surge in merger and acquisition (M&A) activity.

What’s Driving the Change?

• Rising tech costs across the lifecycle (integration, fraud prevention, onboarding)
• Margin pressure and profitability uncertainty
• Regulatory creep despite rollback rhetoric
• Intensifying competition from fintech lenders

Key Considerations for Executives

1. Evaluate technology and cost trajectory.
2. Benchmark profitability against peers.
3. Reassess scale requirements under current compliance models.
4. Monitor capital flexibility.
5. Align strategic mission with execution.

Institutions may now pursue strategies, such as announcing multiple acquisitions in quick succession, that were previously considered too risky. Internal readiness and efficient due diligence can position banks to capitalize on the accelerated pace.

Capital Strategy

High interest rates, market volatility, and policy uncertainty are making common equity harder to raise. Investors favor stability, channeling capital toward established, diversified firms. Trends include:

• Consolidation: Asset managers and private equity firms are driving concentration of assets under management (AUM) into mega-managers.
• Alternative Options: Offensive IPOs, balance sheet cleanup, and distressed transactions.
• Shareholder Activism: Resurgence around capital discipline, governance reform, regulatory efficiency, and activism readiness.

Capital scarcity is driving institutions to explore hybrid instruments and strategic partnerships as alternatives to traditional equity. Pressure from activist investors is accelerating timelines for governance reform and operational efficiency.

The “Now or Never” Moment

With regulatory rollback in motion and M&A activity accelerating, 2026 offers a window of opportunity to:

• Reshape balance sheets
• Pursue strategic mergers
• Revisit governance structures
• Position for talent acquisition as larger institutions consolidate

Charter shopping and holding company eliminations are back on the table, particularly for banks over $5 billion in assets seeking operational simplicity. Institutions that act decisively can secure scale, optimize cost structures, and strengthen governance before regulatory uncertainty returns. Strategic clarity and execution discipline will separate leaders from laggards in this pivotal year.

We Can Help

Our Financial Services Group helps banks and credit unions understand regulatory requirements, optimize capital strategies, and execute transformative M&A.

Let’s start the conversation about your 2026 roadmap.

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The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.

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