Morningstar DBRS has published commentary on the U.S. banking sector that  provides a neutral outlook for the U.S. banking sector in 2026, highlighting resilience amid economic challenges. Key highlights include:

Economic Environment and Banking Performance

• The U.S. banking sector is expected to perform well in 2026, supported by a generally stable economic environment, despite signs of a softening labor market and ongoing inflation.

• Anticipated U.S. GDP growth is projected at 2.0% for both 2025 and 2026, which is conducive to banking sector performance.

• Banks are benefiting from tax cuts and deregulation, with healthy balance sheets characterized by solid capital and liquidity profiles.

• Profitability metrics are improving, positioning banks to achieve good results even in a potentially weakening environment.

Regulatory Changes and Capital Management

• Significant regulatory leadership changes have occurred, aligning with a deregulatory agenda under the Trump administration.

• A revised Basel III capital framework proposal is expected in early 2026, likely to be capital neutral.

• Banks are managing their Common Equity Tier 1 (CET1) ratios while returning capital to shareholders through dividends and share repurchases.

• The average CET1 ratio for large U.S. banks was 11.83% as of September 30, 2025, reflecting improved earnings.

Profitability and Revenue Growth

• Bank earnings are projected to remain solid in 2026, aided by lower short-term interest rates and a steeper yield curve, which will help maintain net interest margins.

• Revenue growth is expected to continue, driven by loan and core deposit growth, with banks focusing on expense control and selective investments in technology.

• Many banks reported record net interest income in 2025, indicating strong performance in net interest income generation.

Asset Quality and Loan Performance

• Asset quality metrics remain sound, with declining nonperforming loans (NPLs) and low overall loan losses.

• While some high-profile bankruptcies have raised concerns, these are viewed as isolated incidents rather than indicative of broader asset quality deterioration.

• A modest weakening in asset quality metrics is anticipated in 2026, particularly for banks with exposure to subprime consumer credit and businesses sensitive to inflation and tariffs.

Balance Sheet Strength and Competition

• U.S. banks maintain strong balance sheets with ample liquidity, although deposit growth may become more challenging in 2026 due to increased competition for deposits.

• Despite returning capital to shareholders, banks are expected to continue managing their capital prudently, with M&A activity likely to increase as banks seek to build scale and market share.

• The competitive landscape is intensifying, with regional banks expanding geographically and larger banks like JPMorgan Chase and Bank of America enhancing their national presence.

Fintech Competition and Technological Investment

• Competition from fintech companies is expected to persist, with traditional banks likely to partner with or acquire fintechs to enhance their digital offerings.

• Recent regulatory changes have allowed fintechs to apply for bank charters, potentially increasing competition in small-business lending and savings accounts.

• Legacy banks are leveraging their existing customer networks and technology budgets to maintain a competitive edge against new entrants focused on niche markets.

Outlook Summary

• The overall outlook for the U.S. banking sector in 2026 is neutral, with banks positioned to adapt to changing conditions while maintaining profitability and asset quality.

• Continued focus on expense management, revenue growth, and strategic investments in technology will be crucial for banks to navigate the evolving landscape.

• Regulatory changes and competitive pressures from both fintechs and traditional banks will shape the sector's dynamics moving forward.