Risk management for banking is no longer just a compliance exercise. It is a strategic tool to address uncertain business conditions, which often involve volatile interest rates, increased deposit competition, and shifting regulatory requirements. 

With all of those in mind, it is clear that traditional siloed approaches to risk evaluation are no longer enough. 

Modern risk management trends reveal a demand for integrated data and the ability to assess multiple what-if scenarios simultaneously. 

This is because finance leaders are now being asked to provide deeper insights not only into risk exposure but also into potential trade-offs and the specific impacts on earnings. 

Here, we’ll explore the top eight risk management trends shaping the banking landscape for 2026. With an emphasis on how smaller institutions like credit unions and community banks can adapt, modernize processes, and leverage integrated risk management platforms. 

1. Emerging Risks Become More Interconnected

Emerging risks are developing or accelerating risk exposures that arise from changing market conditions, where a single shift, such as interest rate movement, can alter deposit behavior and cascade into liquidity, capital planning, and overall financial performance.

The bottom line is that risks, now more than ever, are interlinked and can have a domino effect across multiple areas. Regulatory agencies have witnessed this. In response, banks must demonstrate that risk is being managed appropriately. 

Finance leaders must now understand how risks across sectors interact and how their combined effects can impact earnings, risk, and strategic decisions.

While awareness of this is crucial, most banks struggle with execution. This is mainly because many existing data platforms are disconnected from one another, making it difficult to see the whole picture.

Empyrean addresses this by unifying data across ALM, CECL, and financial planning. With a shared platform for data and assumptions, scenario planning can occur more seamlessly and consistently, supporting a system with stronger governance and better decision-making for leaders.

2. Interest Rate and Liquidity Risk Remain Top Strategic Priorities

Interest rate and liquidity risks are frequent topics of conversation at banks and credit unions. That’s because these items can place significant strain on a bank’s cash flow, balance sheet stability, and interest margins. Even small shifts can have meaningful impacts on a bank’s earnings and risk tolerances. 

Liquidity stress testing has therefore become more frequent, with greater emphasis on scenario analysis in strategic planning. Typical scenarios involve various funding pressures to determine the domino effect on a bank’s balance sheet. 

Regulators and board members are increasingly expecting these analyses to provide insights into funding plans, balance sheet strategy, and asset and liability management decisions.

Empyrean supports an integrated framework for ALM and liquidity stress testing. By using a shared bank of data and assumptions, banks and finance leaders can more easily and quickly respond to changes in market conditions and provide regulators and board members with greater confidence.

Pro tip: Align interest rate assumptions used in ALM and risk scenarios with capital and budgeting models to ensure downstream impacts are reflected consistently when evaluating multiple what-if scenarios.

3. Deposit and Funding Risk Drive New Balance Sheet Strategies

In recent years, deposit behavior has changed materially as technology has made it easier for customers to move funds quickly and with minimal friction. This increased competition has heightened rate sensitivity and intensified competition among banks. As a result, funding and deposit risk management have become core strategic drivers.

Changes in deposit behavior have forced banks to seek tools that provide deeper insights into balance sheet stability and the trade-offs of deposit replacement. 

These changes directly impact interest margins, liquidity, and risk tolerances, and the ability to take on more growth initiatives. With that said, inaccurate modeling can lead to misguided strategies and overstated revenue projections.

Deposit behavior shifts have also forced banks to adopt a new mindset toward growth. Specifically, additional perspectives on the funding mix and liquidity costs are now being considered more frequently. 

Institutions looking to stay competitive in this new landscape are implementing deposit behavior into scenario analysis and modeling to determine how various actions can influence profitability.

Here, Empyrean can significantly aid in the approach as its Deposit Analytics platform integrates seamlessly with ALM. Together, banks can use scenario-based deposit modeling to gain better insight into funding strategies and potential trade-offs, enabling them to adapt to market shifts quickly.

Pro tip: Combining deposit analytics with funding scenario analysis can reveal the actual cost of loan growth initiatives across multiple rate and liquidity environments. 

4. Forward-Looking Modeling Becomes a Regulatory Expectation

Regulators have long expected transparency and forward-looking analysis. While the baseline supervisory scenario often remains a static balance sheet, examiners are increasingly placing emphasis on an institution’s ability to evaluate additional scenarios to understand potential risk exposures.

Instead, banks are now expected to provide evidence that multiple scenarios were considered, that assumptions were developed, and that the results of those analyses inform executives’ long-term strategic decisions.

Current expected credit losses (CECL) is one item that accelerated those requirements, specifically for credit risk modeling. It required forward-looking credit loss estimates based on reasonable, supportable forecasts, thereby establishing a new benchmark for modeling. 

Regulators continue to expect a forward-looking mindset within CECL, and many institutions are increasingly applying similar approaches to ALM, capital, and liquidity planning, reflecting broader financial risk management trends identified in Empyrean’s research.

For many banks and lending institutions, the difficulty lies in managing models built in different systems. Since they operate independently, it’s often difficult to ensure each uses the same data set, requiring manual processes to reconcile discrepancies.

With Empyrean, institutions can eliminate those challenges by unifying CECL, ALM, and planning with a single data model. This helps ensure that each uses the same set of data and assumptions, reducing the time and resources needed to be audit-ready.

5. Risk, Planning and Profitability Converge

For banks, risk management is a key consideration for financial performance. Proper risk management and scenario testing are now seen as a way to gain insight into profitability under different market conditions across all levels of the organization.

When analyzed together, risk management and financial performance help answer key questions for banks:

• Where are margins most vulnerable and under what scenarios?
• How is profitability affected by funding and capital costs?
• Which products and branches are expected to continue performing well regardless of market shifts?

Without a unified view, profitability metrics may not be accurate. Growth initiatives may appear attractive on the surface, but fall short of expectations when funding pressures and rate volatility are factored in. 

With that in mind, many forward-looking institutions are now implementing risk scenarios into performance and planning forecasts to ensure long-term success.

Empyrean can aid this process by integrating profitability and FTP directly with ALM and planning. With shared information and assumptions, banks can use the data to analyze risk through a risk-management lens.

Pro tip: Applying risk-adjusted profitability analyses can help you gain insight into resource allocation and identify investments to prioritize. This can ensure sustainable, long-term growth through various market cycles. 

6. Lean Teams Shift Toward Integrated and Outsourced Modeling

Constraints on staffing and resources are forcing institutions to re-evaluate their risk modeling approaches. Without the necessary resources, it becomes challenging to maintain complex ALM and CECL requirements without sacrificing day-to-day operational needs. One solution to this problem is outsourced or co-sourced modeling support.

Banks and credit unions today are not just looking to outsource work. They also need expertise to streamline compliance and regulatory audits. They also want flexibility, allowing them to adopt models in-house over time without rebuilding systems or starting from scratch.

This shift has led to increased demand for integrated outsourcing solutions that combine technology and expertise, without forcing institutions to become dependent on manual processes. 

Empyrean can help you take the next step thanks to its outsourced ALM, integrated outsourced ALM, and Empyrean advisory services, all of which provide banks with expert modeling and a seamless path to in-house operations over time. 

7. Timely Dashboards Enhance Reporting and Decision-Making

Static reports are no longer sufficient for risk management and reporting. Instead, top institutions are now considering dynamic, interactive dashboards because they enable faster, more effective decision-making. 

With these new dashboards, teams can compare multiple scenarios side by side to more quickly and easily identify earnings impacts without having to analyze excessive data in spreadsheets or tables.

The value of quick adaptation is evident in volatile environments. Being able to visualize modeling outputs from real-time data quickly can provide insights for easily communicable, defensible business decisions and strategies.

That said, dynamic reporting is meant only to supplement and strengthen traditional financial reporting. Dynamic dashboards add value primarily by enabling teams to more easily interpret large volumes of data and focus on decisions to be made, rather than on compiling and organizing the data.

Empyrean’s product lineup offers customizable dashboards that illustrate scenario-driven results in an easy-to-understand format. The end goal is to allow teams to move more quickly from analysis to action and strengthen alignment with stakeholders across the entire organization.

8. Cyber and Model Risk Gain Greater ALCO Visibility

In recent years, cyber and model risk have become increasingly popular topics of discussion for ALCO. This is a result of technology becoming increasingly integrated with financial planning and management, requiring institutions to understand financial risks, potential outcomes, and underlying operational risks.

From a cyber perspective, banks must now evaluate risks that may disrupt systems, cause data integrity issues, or overreliance on third parties that could impair modeling or reporting. 

Model risk has become just as important as regulatory bodies, executives, and board members need evidence that assumptions have remained consistent across models, that methodologies are logical and defensible, and that there won’t be any issues during an audit.

From Insights to Action: How Empyrean Helps

Heading into 2026, it’s clear that utilizing static processes will no longer be sufficient to manage risk. Dynamic, forward-looking models must be adopted to address ongoing interest rate volatility, liquidity pressures, competition for deposits, and ever-changing regulatory requirements.

Across all trends, institutions that have best managed these changes have several factors in common. They have focused on shared data platforms, which, in turn, allow for greater consistency in assumptions and forecasts. 

This, in turn, allows executive and other finance leaders within the organization to more quickly analyze and interpret the data in determining next steps for communicating strategic moves.

With Empyrean, institutions can transition into this next stage of risk management with the following features:

• ALM: Quick modeling that can be done for liquidity and interest rates for a variety of scenarios and assumptions. 
• Budgeting and Planning: Rolling forecasts and a collaborative approach to financial planning
• CECL: An accounting standard that requires institutions to estimate expected credit losses over the life of financial assets using reasonable and supportable forward-looking information.
• Profitability and FTP: Provides risk-adjusted insights across the organization, including varying branches and loan products. 
• Outsourced ALM and Advisory: Modeling support that allows institutions limited on staffing or resources to still take advantage of quality insights.

With all those available features, institutions can strengthen their compliance processes, improve speed, and enhance the quality of business decisions. Learn more about how Empyrean Risk Management solutions can help banks and credit unions identify and manage market risks.

FAQ: Risk Management Trends in Banking