RBC's Gerard Cassidy on Bank Stocks, Fed Rate Cuts, and 2026 Outlook

Positive Outlook for Bank Stocks in 2026

• 📈 Financials have been a standout performer, reaching record highs, with positive trends expected to continue into 2026.
• 💡 A steepening yield curve is highly beneficial for banks, and potential Fed rate cuts will further fuel bank stock performance, especially for regional banks.

Evolving Regulatory Environment

• 🏛️ The regulatory environment has shifted significantly, with current regulators being more constructive and supportive of the banking industry.
• ⚠️ The Basel 3 endgame proposal on capital levels for large banks is a key upcoming change, with expectations that it will be supportive of the industry.
• ✅ If the Basel 3 endgame is as supportive as prior regulations, bank profitability and valuations are expected to grow.

Regional Banks' Catch-Up Potential

• 🚀 While money center and investment banks have excelled due to strong capital markets and M&A activity, regional banks are poised to catch up in 2026.
• 💰 This catch-up is driven by the steepening yield curve, leading to better net interest margins, from which regional banks derive a larger percentage of revenue.

Loan Growth and Lending Activity

• 💬 Banks are expected to lend more aggressively in 2026, with loan growth potentially surprising to the upside.
• 💼 Commercial and Industrial (CI) loans and commercial real estate (CRE) portfolios are specifically highlighted as areas where lending is expected to increase after a period of shrinking.