The Zacks Major Regional Banks’ asset quality is expected to remain weak as Trump’s tariffs result in higher inflation in the near term. Yet, as the Federal Reserve continues to cut interest rates, industry players’ net interest income (NII) and margins should improve as funding costs first stabilize and then decline. Combined with modest economic growth, this tailwind is likely to lift loan demand.

Business restructuring and expansion efforts, along with ongoing digitization, should provide additional support. So, major regional banks like The Bank of New York Mellon Corporation (BK Quick QuoteBK - Free Report) and U.S. Bancorp (USB Quick QuoteUSB - Free Report) are well-positioned to gain.

About the Industry

The Zacks Major Regional Banks industry includes the nation’s largest banks in terms of assets, with most operating globally. The financial performance of these banks largely depends on the nation’s economic health. As banks are involved in numerous complex financial activities, they are required to comply with stringent regulations set by the Federal Reserve and other regulatory agencies. Apart from traditional banking services, which are the source of net interest income (NII), major regional banks provide a wide array of other financial services and products to retail, corporate and institutional clients, both domestic and global. These include credit and debit cards, mortgage banking, wealth management and investment banking, among others. Therefore, a significant revenue source for these banks is fees and commissions earned from these services.

4 Major Regional Banks Industry Trends to Watch

Lower Interest Rates: The Fed has started lowering interest rates, with a 50-basis-point cut already announced and further trimming expected. Inflation and the weakening labor markets are driving the central bank to slash rates. As the rates fall, major regional banks will likely benefit from further fall/stabilization of deposit costs and a gradual improvement in the lending scenario. Though there will likely be near-term pain in the form of lower NII and margins, the industry players are expected to benefit from reduced interest rates once the ambiguity related to tariffs is resolved.

Modest Rise in Loan Demand: The central bank’s aggressive monetary policy stance in 2021 and 2022 hurt loan demand amid the risk of a severe economic downturn/recession. While the Fed’s Summary of Economic Projections (SEP) released in June 2025 indicated that U.S. economic growth is expected to slow down this year on account of rising inflation, demand for loans will likely improve as borrowing costs decline. Also, clarity on several macro factors will drive loan demand. As such, major regional banks’ NII and net interest margin are expected to rise slightly. 

Restructuring Initiatives: Major regional banks are undertaking initiatives to expand into new avenues and lower their dependence on spread income. The business restructuring is essential for technological advancement and further domestic/global expansion to continue improving profitability. Industry players are investing in artificial intelligence and other digital platforms and even partnering with or acquiring providers of such services. Major regional banks are also aggressively expanding their footprint outside the United States. Several industry players are reevaluating their business structures to simplify operations and eliminate less profitable ones.

Asset Quality: Mounting concerns about the economic health and the impacts of trade policies being pursued by the Trump administration pushed prices up. This will take a toll on borrowers’ ability to repay loans. Thus, industry players are building additional reserves to counter any fallout from unexpected defaults and payment delays. While conservative lending strategy and the resilience of borrowers helped major regional banks keep their asset quality manageable, several metrics have crossed the pre-pandemic levels.

Zacks Industry Rank Reflects Improving Prospects

The Zacks Major Regional Banks industry is a 10-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #52, which places it in the top 22% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outpace the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of an encouraging earnings outlook for the constituent companies in aggregate. The aggregate estimate revision trend reflects an improving situation. Over the past year, the industry’s earnings estimates for 2025 have been revised 2.1% upward, and those for 2026 are up 1%.

Before we present some major bank stocks to keep on your radar, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry's Stock Market Performance Is Weak

The Zacks Major Regional Banks industry underperformed the S&P 500 composite and the sector in the past year. 

Stocks in this industry have collectively gained 9.6% in the past year. In the same time frame, the Zacks S&P 500 composite has jumped 14.6% and the Zacks Finance sector rallied 11.3%.

One-Year Price Performance

 

Industry's Valuation is Attractive

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing banks because of large variations in their earnings from one quarter to the next.

The industry currently has a trailing 12-month P/TBV of 2.50X. This compares with the highest level of 3.23X, the lowest of 1.84X and the median of 2.36X over the past five years. The industry is trading at a huge discount compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 composite is 12.87X, as the chart below shows.

Price-to-Tangible Book Ratio (TTM)

As finance stocks typically have a lower P/TBV ratio, comparing major regional banks with the S&P 500 may not make sense to many investors. However, comparing the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a solid discount. The Zacks Finance sector’s trailing 12-month P/TBV came in at 5.94X. This is above the Zacks Major Regional Banks industry’s ratio, as the chart below shows.

Price-to-Tangible Book Ratio (TTM)

 

2 Major Regional Banks to Bet on

BNY Mellon: Operating in 35 countries, BNY Mellon provides various products and services to individuals and institutions. Its global client base consists of financial institutions, corporations, government agencies, endowments and foundations, and high-net-worth individuals.

Despite the decline, interest rates are still relatively higher than the near-zero levels in 2020 and 2021. This will support BK’s NII and net interest margin (NIM), driven by stabilizing funding costs. The company’s growth initiatives are impressive. It has been launching several new services and products, digitizing operations and making strategic collaborations. Launch of a Stablecoin reserves fund to support institutional adoption of digital assets will further drive fee revenues.

In 2024, BK acquired Berwyn, PA-based Archer Holdco, LLC, a leading technology-enabled service provider of managed account solutions to the asset and wealth management industry. This will bolster the company’s retail wealth presence. The company also announced plans to launch Alts Bridge, an extensive data, software and services solution.

This Zacks Rank #2 (Buy) company has been trying to gain a foothold in foreign markets and is undertaking several growth initiatives (including launching new services, digitizing operations and making strategic buyouts). Its international revenues are expected to continue improving as the demand for personalized services rises globally. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BNY Mellon has a market cap of $79.8 billion. The Zacks Consensus Estimate for earnings indicates growth of 22.1% for 2025 and 10.2% for 2026. This year, the stock has soared 50.9%.

Price and Consensus: BK

U.S. Bancorp: Headquartered in Minneapolis, MN, U.S. Bancorp provides banking and investment services, mainly operating in the Midwest and West regions of the United States. The company has expanded through several strategic acquisitions over the years, which have strengthened its market position, digital capabilities and diversified revenue streams. 

In the past few years, USB has acquired Salucro Healthcare Solutions LLC, MUFG Union Bank’s core franchise and fintech platforms. In June 2025, USB partnered with Fiserv to integrate its Elan Financial Services credit card program into Fiserv’s Credit Choice Solution. These efforts will continue to strengthen the company’s fee-based businesses.

Additionally, the company’s NII has been rising over the past few years. Going forward, investment portfolio repositioning, less deposit migration, lower rates and stabilizing funding costs will continue to support NII and NIM expansion. U.S. Bancorp is experiencing solid growth in average loans and deposits in recent years as it expands relationships with existing customers and acquires new ones.

The company’s capital distributions seem impressive. In September, U.S. Bancorp hiked its quarterly dividend by 4% to 52 cents per share. In 2024, the company announced a $5 billion share repurchase program. Given its consistent earnings and decent liquidity position, the company’s capital deployment activities seem to be sustainable.

USB, which carries a Zacks Rank of 2, has a market cap of $79.5 billion. The Zacks Consensus Estimate for earnings indicates growth of 14.1% and 7.1% for 2025 and 2026, respectively. The stock has rallied 7.8% this year.

Price and Consensus: USB