Travillian’s 2025 Blueprint: How Banks Can Thrive Amid Change

The banking industry faced a tumultuous 2024, ending with a nine percent decline in the KBW Regional Banking Index (KRX) during December, compared to a two percent drop in the S&P 500. Yet, experts like Michael Perito, Head of Bank Strategy at Travillian, and Steve Nelson, Managing Director at D.A. Davison, foresee opportunities for differentiation and growth in 2025. 

Key Areas of Optimism and Concern for U.S. Banks in 2025 

Positive Trends Shaping the 2025 Banking Landscape

• Expanding margins driven by a steeper yield curve 
• Banking M&A and capital markets reopening with regulatory support 
• Stable economic indicators and flat or declining corporate tax rates 

Potential Challenges Facing Banks in 2025

• Competitive deposit markets and uncertainty about loan growth drivers 
• Real estate, inflation, and credit quality risks 
• Talent shortages impacting strategic initiatives 

Strategies for Differentiation in 2025

Perito predicts the industry will transition from uniform trading patterns to a year of differentiation. Strong performance will hinge on achieving net interest income growth, reaccelerating loan growth, and leveraging stabilizing liquidity. However, the higher bar for net interest income (12 percent+ growth) means not all banks will succeed. 

• Loan Growth Challenges
  

  With commercial real estate (CRE) losing prominence due to regulatory limits and non-bank competition, banks must explore new avenues. Few institutions are well-positioned for significant commercial and industrial (C&I) loan growth, leaving the sector searching for catalysts. 

• Deposit Strategies
  

  Digital-native platforms and major banks dominate deposit growth. To compete, banks must adopt innovative technologies, diversify deposit bases, and retain core customers for operational efficiency. 

The Rise of the Financial Industry CTO

Expanding margins and declining rates provide room for strategic investments. Perito anticipates a pivot toward hiring Chief Technology or Innovation Officers to oversee digital transformation initiatives, from infrastructure upgrades to fintech partnerships. Talent retention remains critical, requiring robust career development and competitive compensation to protect key personnel. 

2025 Banking Strategies: M&A, Funding, and Profitability 

Bank M&A in 2025

Nelson sees 2025 as a rebound year for M&A, with 150 deals expected—up from 128 in 2024 but below the decade average of 205. A favorable regulatory environment, reduced interest rate pressures, and improving valuations will support activity. 

Optimizing Asset-Liability Management for 2025 

Banks with low-cost deposits and higher-yielding, short-duration assets will command premium valuations. Institutions burdened with long-term, low-yield assets face greater challenges. 

Fintech and Nontraditional M&A: Reshaping the Banking Sector in 2025 

Renewed investor interest in bank equities signals momentum. Subordinated debt refinancing will gain traction as early 2020s issuances approach variable rate resets. IPO activity could revive, providing liquidity and growth capital. 

Fintech companies are expected to acquire smaller banks, leveraging regulatory tailwinds and streamlined operations. Stablecoins and digital strategies, including banking-as-a-service, could see renewed focus as the fintech landscape evolves. 

Credit Risks and Enhancing Bank Profitability in 2025 

Both experts acknowledge ongoing credit and profitability pressures. Perito highlights persistent risks in CRE, with higher rates exacerbating one-off losses. Nelson emphasizes balance sheet growth paired with profitability as essential for valuation upside in a competitive market. 

Strategic Imperatives for U.S. Banks in 2025 

As 2025 unfolds, U.S. banks must navigate a dynamic landscape marked by opportunities and challenges. Embracing innovation, optimizing strategies, and aligning with market shifts will differentiate leaders from laggards. For a complete blueprint on thriving in the evolving banking environment, drawing on insights from Perito and Nelson, visit Travillian Next.