Banks are facing increasing challenges as the financial sector evolves, according to recent discussions with senior leaders from 32 global banks. These conversations highlight how traditional banking stressors are merging with new threats, prompting institutions to reconsider their approaches to risk, growth, and operational agility.

One of the main pressures comes from non-bank competitors such as private credit firms and fintech companies. These organizations often operate under fewer regulatory constraints, which allows them greater speed and flexibility. As a result, traditional banks are seeking strategic partnerships or syndication opportunities with these players and are working to accelerate internal decision-making processes.

Credit risk is also receiving heightened attention due to high interest rates and economic uncertainty. Banks are tightening lending standards and focusing more on borrower fundamentals. Many institutions are moving toward building deeper relationships with more resilient borrowers while conducting detailed scenario analyses of existing portfolios.

Regulatory demands have become a central element in shaping bank strategies. Compliance requirements related to Basel IV, anti-money laundering (AML), climate disclosures, and stress testing now influence capital allocation and internal system design. In response, banks are formalizing risk frameworks, investing in early warning systems, strengthening compliance infrastructure, raising capital when necessary, diversifying loan portfolios, or even rethinking business models.

Fragmentation among teams remains an issue for many institutions. Misalignment between risk management, finance, and origination can slow down responses to emerging risks. Some banks address this by creating integrated deal teams or embedding risk professionals into front-line units; others invest in shared data platforms for better coordination across departments.

Despite improvements in risk monitoring technology, many banks still struggle with proactive detection of borrower deterioration between reporting cycles. Institutions are experimenting with tools that track performance against covenants and monitor macroeconomic risks but have yet to implement fully predictive systems for early problem identification.

A persistent cultural tension exists between pursuing growth and maintaining prudent risk management. Leading banks attempt to manage this balance through clearer definitions of risk appetite and governance structures that encourage debate between credit partners and commercial teams.

While there is significant interest in adopting artificial intelligence (AI) for modernization efforts—such as document generation or fraud detection—most AI initiatives remain limited in scope due to fragmented data systems and trust concerns. Broader applications like AI-driven credit decisions are still being piloted rather than widely deployed.

Looking forward, the report notes that stressors will continue evolving rather than simply increasing in number. Forward-looking institutions focus on integrating risk into strategic planning while modernizing systems for resilience.

Moody’s banking solutions offers support for institutions aiming to unify their risk management, finance operations, and lending capabilities during this period of transformation (https://www.moodys.com/web/en/us/who-we-serve/banking.html). Further insights on these industry trends can be found at https://www.moodys.com/web/en/us/insights/smarter-banking-under-pressure.html

"Success in this environment depends not on avoiding stressors — but on using them as catalysts for smarter, more sustainable growth."

"As banks continue to navigate these pressures," the release states," Moody’s banking solutions is helping institutions strengthen their resilience – unifying risk, finance, and lending capabilities to support confident decision-making and agile growth."