68% of Bankers Fear Recession in 2026 as Tariff Uncertainty Rattles Markets

A growing chorus of financial industry leaders is warning that recession may be closer than markets suggest. According to exclusive research from American Banker, 68% of banking professionals now believe tariff volatility poses moderate to high risk to financial institutions in 2026. With inflation easing but confidence remaining "conditional," and central banks signaling that ultra-low rates aren't coming back, the financial sector is bracing for a downturn that could reshape lending, dealmaking, and risk management.

The Tariff Anxiety

The primary source of recession anxiety isn't traditional economic fundamentals — it's trade policy uncertainty. The escalating tariff regime has created a fog of unpredictability that makes it nearly impossible for businesses to plan capital expenditures, supply chains, or hiring. Banks are seeing the impact in their loan portfolios as corporate borrowers delay expansion plans, renegotiate terms, and hold cash rather than invest. The 68% figure from American Banker's survey represents a sharp escalation from 2025, when most bankers were cautiously optimistic.

Private Equity's Waiting Game

One of the most telling indicators is the behavior of private equity firms. Global PE funds collectively hold over $2 trillion in unallocated capital — "dry powder" that represents both a record stockpile and a vote of no-confidence in the current environment. While sponsor-backed M&A activity rebounded 48% year-over-year in Q3 2025 to $1.6 trillion, much of that reflected pent-up demand from a prolonged deal drought rather than genuine confidence. Firms are simultaneously deploying and hoarding capital, hedging their bets on an uncertain outlook.

"The ultra-low-rate era that underpinned a decade of leverage-driven expansion is unlikely to return. Confidence remains conditional. The market is repricing for a world where capital costs something." — J.P. Morgan, Financial Sponsors Outlook 2026

Banks Automate for the Storm

In a telling sign of how banks are preparing, Goldman Sachs recently tapped Anthropic's Claude to automate accounting and compliance roles. The move reflects a broader industry trend: major banks are investing billions in technology — including AI "digital employees" and bootcamp training programs — to reduce costs ahead of a potential downturn. UBS beat Q4 expectations with $1.2 billion in profit and announced a $3 billion buyback, but even strong results are being paired with aggressive cost-cutting initiatives.

The Regulatory Avalanche

Banks are also grappling with an unprecedented regulatory environment. February 2026 alone sees 45 regulatory deadlines across global jurisdictions, including 26 consultation response deadlines and 15 new measures taking effect. The New York FAIR Act took effect February 17, prohibiting unfair business practices. China's new anti-money laundering measures require continuous sanctions monitoring. The regulatory burden is forcing banks to spend more on compliance at precisely the moment they need to preserve capital for potential loan losses.

What Happens Next

The consensus among economists is that recession is possible but not inevitable. Inflation across the US, UK, and Europe is easing. Interest rates are drifting lower. Credit markets remain open. But the path forward depends heavily on trade policy decisions that could accelerate or prevent an economic contraction. For businesses and consumers, the message from the banking sector is clear: hope for the best, but prepare for turbulence.