Assessing the 2026 Outlook for Major U.S. Banks: Earnings Momentum and Strategic Implications

The U.S. banking sector is entering a pivotal phase in 2026, shaped by a confluence of regulatory tailwinds, robust earnings momentum, and strategic capital allocation decisions. After years of navigating post-2023 crisis adjustments, major banks are leveraging a more flexible regulatory environment to enhance capital returns, accelerate M&A activity, and refine their business models. This analysis examines the interplay of these factors, drawing on recent developments and institutional actions to assess the sector's trajectory.

Regulatory Tailwinds: A New Era of Flexibility

Regulators have adopted a more accommodative stance toward capital rules, signaling a shift from the stringent post-crisis framework. The Federal Reserve, Office of the Comptroller of the Currency (OCC), and FDIC have collectively reduced the enhanced supplementary leverage ratio for the largest banks and rescinded the 2013 leveraged lending guidance, enabling institutions to re-enter the leveraged loan market. These changes, part of a broader deregulatory trend, aim to stimulate lending and ease capital burdens while maintaining systemic stability.

A key development is the Fed's revised stress testing approach, which averages results over two years to reduce volatility in capital requirements. This adjustment has provided banks with greater predictability in planning capital distributions. For instance, JPMorgan Chase's 2025 stress test results showed a CET1 ratio of 14.2%, well above the 4.5% minimum, directly supporting its decision to boost dividends and authorize a $50 billion share repurchase program. Similarly, the 2025 enactment of the GENIUS Act created a federal framework for stablecoin issuance, opening new revenue streams for banks seeking innovation.

Critics caution that reduced regulatory guardrails demand stronger internal risk management. Governance, risk, and compliance teams now bear heightened responsibility for liquidity, credit exposure, and operational resilience. However, the sector's collective focus on efficiency and digital transformation- bolstered by AI-driven tools-suggests banks are adapting to this evolving landscape.

Earnings Momentum: A Sector on the Rise

The KBW Nasdaq Bank Index (^BKX) is projected to outperform the S&P 500 for the third consecutive year in 2026, driven by strong trading fees, expanded lending, and favorable interest rate dynamics. Bank of America, for example, anticipates 19% earnings per share growth in 2026, reflecting its ability to capitalize on classic drivers of returns: revenues, costs, capital, and credit.

Lower interest rates, expected to follow the Fed's 2026 rate-cut cycle, are further amplifying the sector's appeal. Wealth managers highlight that M&A activity and rate cuts will be key catalysts for bank stocks. The Invesco KBW Bank ETF (KBWB), which includes institutions like Goldman Sachs and Morgan Stanley, surged nearly 30% in 2025, underscoring investor confidence.

Strategic Capital Allocation: Dividends, Buybacks, and M&A

Regulatory flexibility has directly influenced banks' capital return strategies. JPMorgan Chase, Bank of America, and Goldman Sachs have all announced significant dividend increases and share buyback programs in 2025. JPMorgan raised its quarterly dividend to $1.50 per share and authorized a $50 billion repurchase program, while Bank of America increased its dividend by 8% to $0.28 per share and approved a $40 billion buyback. Goldman Sachs' 33% dividend hike to $4 per share reflects similar optimism.