Banking on a comeback

When you think of banks, you probably picture the towering skyscrapers of Goldman Sachs or Morgan Stanley looming over Wall Street. But while JPMorgan and friends dominate CNBC chyrons, smaller players are quietly rallying.

Since the start of the year, the KBW Nasdaq Regional Banking Index, which tracks 50 banks with under $100 billion in assets, is up 9.17%, according to the Wall Street Journal. It’s outperforming the KBW Nasdaq Bank Index, which tracks large-cap US banks and is up only 4.14%.

One reason: Loan growth is making a comeback. For a while, smaller businesses held off on borrowing amid policy uncertainty and shifting economic conditions. Now, commercial and industrial lending is beginning to recover, with many regional banks signaling a more constructive outlook for the rest of the year.

That rebound also helps on the margin side. Regional banks are typically more sensitive to interest rates than bigger banks because their deposit bases are less stable, forcing them to raise funding costs quickly when rates climb. But stronger loan growth can help offset those pressures, improving profitability even as rate expectations shift.

Finally, a long-expected wave of bank mergers that has been delayed by geopolitical tensions and market volatility could pick back up if conditions stabilize, providing another tailwind for regional bank stocks.

Don’t sleep on the giants

Before you write off the giants, though—they’re doing just fine. The biggest banks have built more diversified, resilient business models, giving them multiple ways to generate revenue across economic cycles.

They’re proving it in earnings reports: trading desks are thriving amid higher volatility, while investment banking is rebounding as deal pipelines improve. Across the largest banks, revenue rose 17% year over year, while dealmaking fees jumped 29%. And with capital rules expected to ease, many analysts foresee a stronger pipeline of deals ahead.

Surprisingly, banks are also leaning into private credit, with more than $185 billion of combined exposure—about 20% of which is held by regional banks. Rather than viewing it as a risk, executives see opportunity: As some nonbank lenders pull back amid redemptions and tighter conditions, banks both big and small are stepping in to fill the gap.

Bottom line: Regional banks are benefiting from a lending rebound, while big banks are cashing in on trading, deals, and new credit opportunities. The financials sector is trailing the broader market in 2026, but with momentum building on multiple fronts, it looks set for a serious comeback.—SY