From stability to strategy – The 2025 banking reset and the 2026 roadmap

The financial markets concluded 2025 with robust gains, a performance driven by the transformative rise of AI-driven technology, a supportive pivot in monetary policy featuring three Federal Reserve rate cuts, and a ground of resilient corporate earnings. Concurrently, the banking sector navigated a landscape of profound change, handling big changes in regulations, the accelerated adoption of fintech solutions, and operational strains intensified by the industry-wide shift to the faster T+1 settlement cycle.

Market performance rewind

Global equities surged, fueled by Big Tech and AI optimism, with the S&P 500 gaining over 17 per cent*. Emerging markets also delivered strong returns, supported by a depreciating US Dollar, which fell roughly 11 per cent*.

Fixed income markets rallied in the second half of the year as Central Banks pivoted toward easing. The Federal Reserve cut rates three times for a total of 75 basis points, tightening credit spreads and lifting bond prices – even as Eurozone inflation stabilised near 2.1 per cent.

Amid geopolitical tensions, commodities like gold and silver climbed to record highs, exceeding $2,800/oz and $66/oz, respectively. Digital assets, meanwhile, experienced significant volatility: Bitcoin reached an all-time high above $126,000, driven mostly by institutional inflows and ETF approvals, before retreating to $85,000 level.

Banking sector highlights

Major US banks delivered strong results in the Federal Reserve’s annual stress tests, demonstrating robust capital resilience. Each institution maintained a CET1 ratio well above the 4.5 per cent minimum requirement under the severely adverse scenario – with standout performances from JPMorgan Chase (14.2 per cent), Goldman Sachs (12.3 per cent), and Morgan Stanley (12.2 per cent). Citi and Bank of America also remained strong at 10.4 per cent and 10.2 per cent, respectively. While the aggregate CET1 ratio for the 22 tested banks fell from 13.4 per cent to a low of 11.6 per cent under stress, the results collectively unlocked an estimated $210 billion in excess capital, earmarked for shareholder dividends, stock buybacks, and strategic investments.

The global shift to T+1 settlement, now fully embedded in US and Canada since its 2024 rollout, has significantly reduced systemic counterparty risk. However, this efficiency came at an initial cost, increasing operational expenses by 15–20 per cent as firms upgraded their legacy systems. This dynamic is now prompting similar automation drives worldwide, with Europe set to adopt T+1 in October 2027 and Asia-Pacific following in 2028.

Fintech integration accelerated rapidly across the sector. Embedded finance revenues grew by 40 per cent (!), while AI-powered personalisation tools helped reduce customer churn by 25 per cent. ESG-linked investment products also captured 30 per cent more retail capital flows. On the innovation frontier, major banks like JPMorgan and HSBC are leading pilots in asset tokenisation. Notably, in Europe, a consortium of nine major banks (ING, Banca Sella, KBC, Danske Bank, DekaBank, UniCredit, SEB, CaixaBank and Raiffeisen Bank) has formed to launch a MiCAR-compliant, euro-denominated stablecoin. Leveraging blockchain technology, this regulated digital payment instrument aims to become a trusted European standard, with issuance expected in the second half of 2026.

Key regulations and challenges.

EU regulators implemented a major wave of financial reforms in 2025. The year began with the official adoption of CRR III on January 1, which bolstered capital rules under the Basel III framework. These rules mandated higher capital buffers against systemic risks and imposed enhanced liquidity reporting standards. Concurrently, the Digital Operational Resilience Act (DORA) came into force, requiring banks to significantly sharpen their cyber defenses.

Another key development was the EU’s mandate for instant payments across the Single Euro Payments Area (SEPA), which took full effect in October. This shift is actively reshaping the payments landscape and the corporate treasury operations by enabling faster, more optimised cash flows.

For the banking sector, the year presented a challenging profitability landscape. As rates decreased many banks saw their core lending profits (NII) drop by 5–10 per cent. This pressured their business model, leading to heightened competition to attract and retain customer deposits. In response, many banks turned to mergers and acquisitions to restore scale and profitability, resulting in a major wave of industry consolidation with total deal values surpassing $1 trillion. To prevent customer deposits from leaving for higher-yield alternatives, banks offered aggressive loyalty programs and special rates (like special FTDs). This strategy helped them keep their funding costs relatively stable, with the average interest rate paid on deposits staying well below 40 per cent of the benchmark rate.

Operational risks also came to the fore. Compliance scandals at several US regional banks underscored persistent control gaps. This occurred against a backdrop of a 20 per cent rise in cyber incidents, driving substantial industry investment in AI-powered fraud detection systems.

2026 challenges

Banks face a year of persistent headwinds and accelerating fast-paced change. Sluggish global growth at around 2.5 per cent, rising SME defaults from inflation persistence, and fintech – neobanks capturing 15 per cent of retail share will pressure traditional revenue.

To compete (and survive), banks must radically improve their efficiency. Cost-income ratios need to decrease significantly via IT optimisation and modernisation, scaling generative AI for more gains, and outsourcing non-core functions (reducing their operational cost).

The landscape is further complicated by fragmented regulations (like PSD3, stablecoin rules etc.) and macro volatility from ongoing US-China tensions, which heighten credit risk. Meanwhile, surging financial crime and data silos expose compliance gaps.

Their success will depend on three main actions: i. diversifying non-interest revenue toward a 50 per cent target, ii. strengthening and enriching risk models with AI, and iii. forming strategic fintech partnerships to build resilience.

*  prices – percentages are YTD as per 17.12.2025

Disclaimer: This article is the product of the author’s independent research and analysis, citing actual market data and proprietary calculations. The views and opinions expressed herein are solely those of the author. This material is for informational purposes only and should not be construed as investment advice, a recommendation, or a reflection of the official outlook or position of FIMBank.

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