The banking industry experienced a year of steady performance in 2025. Strong net income was driven by higher net interest and non-interest income, and loan growth accelerated to its fastest rate in 11 quarters. However, beneath the surface of stabilizing liquidity and improving Net Interest Margins (NIMs), the FDIC's 2026 Risk Review highlights several emerging vulnerabilities that demand the industry's attention.
As we look toward the future, here are the primary risks banking professionals need to monitor:
While falling interest rates in 2025 helped reduce funding costs and steepen the yield curve, unrealized losses on securities remain elevated. Although the industry's unrealized losses fell 36 percent to $306 billion in 2025—a significant improvement from the 2022 peak—the exposure is still substantial. Furthermore, while banks have actively built borrowing capacity and deposit bases grew (led by uninsured deposits), the industry must continue to navigate a shifting wholesale funding mix. Community banks, for instance, have grown increasingly reliant on municipal and state deposits as a funding channel.
CRE conditions stabilized slightly in 2025, but the outlook—particularly for the office and multifamily sectors—remains soft. High operating costs, elevated interest rates, and rising vacancy rates pose a direct threat to borrowers' ability to repay and refinance debt.
The total CRE past-due and nonaccrual (PDNA) ratio ticked up to 1.45 percent. More concerning is that CRE loan concentrations are particularly high for mid-sized banks; institutions with assets between $1 billion and $100 billion have median CRE loan concentrations hovering around 300 percent of tier 1 capital and reserves. While many banks have utilized loan modifications to provide borrower relief and keep delinquency ratios artificially lower, the underlying market softness presents a critical, ongoing risk.
As we discussed previously, lending to Non-depository Financial Institutions (NDFIs) has been the fastest-growing loan segment since the 2008–2009 financial crisis. While direct credit performance remains incredibly strong—boasting a PDNA rate of just 0.15 percent—this sector harbors substantial indirect risks.
If an economic downturn strikes, NDFIs facing margin calls could collectively draw down their bank-funded credit lines, triggering a sudden and massive liquidity drain on banks. Additionally, forced asset sales by stressed NDFIs could drive down the broader valuation of collateral held by banks across the financial system.
While household debt burdens remained relatively low overall in 2025, consumer loan delinquencies are creeping up. Past-due and nonaccrual (PDNA) rates for auto loans and credit cards remain above their pre-pandemic averages.
In the agricultural sector, credit quality is deteriorating. Row crop farmers are facing a third consecutive year of declining crop receipts coupled with high production costs. This dynamic has eroded working capital, spurred strong loan demand for operational financing, and pushed farm bank agricultural loan delinquency rates to their highest levels since 2021.
Despite solid top-line metrics in 2025, the FDIC's review makes one thing clear: the risk landscape is evolving. To safeguard the future, bankers must rigorously stress-test their CRE portfolios, monitor the indirect liquidity risks stemming from the booming nonbank sector, and remain vigilant against localized consumer and agricultural credit deterioration.
Access the FDIC report here: https://www.fdic.gov/analysis/2026-risk-review?source=govdelivery&utm_medium=email&utm_source=govdelivery.