In recent years, the post-World War II pact guiding global affairs has begun to come apart.
Trade friction is a primary catalyst. Revenue-generating tariffs in developed and developing countries to bridge uneven growth, pay off debt, or exert power have impeded free trade, while regional deals further entangle the global transactional web. Most prominently, China’s ascent has threatened the United States’ once-impregnable dominance.
This shifting show of power and a growing population overall feeds a scramble for fewer natural resources, inviting new stressors. And now, speedy technological changes inject advanced crime and competitive disruptors into mostly stable systems.
To adjust to the changing landscape, all banks — even local and regional institutions once insulated from macro global trends — should aim to better understand the geopolitical landscape and adopt sustainable measures to survive, even thrive.
For banks, multiple influences should be considered. Foreign exchange, interest rate and stock markets are directly exposed to geopolitics, and those ripple effects often impact bank portfolios, said Mark Midkiff, special advisor with Ludwig Advisors. Midkiff led the recent ProSight webinar, “The Weight of the World: Managing Geopolitical Risk.”
Geopolitical reach doesn’t end there. “In addition, consider supply chains, [which] can impact the counterparties that an institution is banking or providing funding to — including impact on the revenue side, or perhaps on the cost-of-goods-sold side, of the equation,” Midkiff advised. “And think about how the third parties [your bank engages with] are impacted. Ask yourself, how are your employees in different geographies potentially impacted? And then, of course, think about cybersecurity and espionage. There are a number of cross-cutting influences that banks should think about.”
Real-Time Responses
For institutions of all sizes, the speed of geopolitical events and their aftermath arguably mark the most significant sea change. There is no longer a lag between an incident and its impact on markets. In the summer of 2019, for example, when Iran’s Revolutionary Guard seized a British oil tanker in the Strait of Hormuz, news reports appeared almost instantly — and oil futures spiked within minutes.
“The 24-hour news cycle and modern technology have made financial markets more volatile, putting pressure on [banking] institutions that may have exposure,” said Joe Iraci, founder and owner of the Phoenix-Veritas Group, during the webinar.
Geopolitical concerns aren’t likely to be downgraded anytime soon. Banks must contend with an ever-shifting sanctions landscape spread across multiple global jurisdictions. And sanctions emerge on top of cascading barriers to trade. Despite widespread economic advocacy suggesting tariffs aren’t a sustainable long-term policy, Iraci believes they’re likely to remain. That’s because debt-strapped governments are dependent on tariffs as a revenue source. “The genie is out of the bottle,” he said.
Meanwhile, technological changes and challenges that would have been unimaginable a generation ago mature faster than most predictions. Foremost for the webinar panel: quantum computing that threatens security encryption, cryptocurrencies whose disruptive growth potential can also facilitate illicit transactions, and the emergence of artificial intelligence (AI) that is rewriting traditional risk guardrails. These technologies advance opportunities for more efficient banking and revenue paths while they increase pressure on prudent risk management. What is clear: their speedy onset will only heighten volatility.
How Can Banks Manage Geopolitical Risk?
A guess at uncertainty is always baked in — but there are clear measures banks can adopt right now to better cope.
1. Stress tests aren’t enough, conduct scenario planning
Banks have traditionally employed stress tests to determine their viability under varying quantitative conditions. But to incorporate key qualitative variables that affect markets — such as coups or sudden regulatory changes — banks must also engage in rigorous scenario analysis.
The good news is that technological innovations over the last 10 or 15 years allow institutions to plan for increasingly complex scenarios that go beyond traditional quantitative metrics like credit risk.
2. Establish centralized sanctions programs
Following President Trump’s inauguration in January 2025, many experts speculated that his administration would target China for sanctions. Nearly a year into his term, these sanctions haven’t materialized, likely due to diplomatic complexities. Instead, the Trump administration has issued sanctions against Russia’s oil industry and against Colombia President Gustavo Petro and his administration. Neither of these moves were a complete surprise, as the panel stressed, but their emergence reinforces a key challenge for banks: sanctions across multiple competing jurisdictions.
This scenario calls for “a centralized location for screening transactions, making decisions, raising alerts, and communicating across a bank’s global entities,” said Molly Short, managing director at Ludwig Advisors, who also participated in the webinar.
Short reinforced the importance of unified sanctions compliance reporting, as recent regulatory changes mean that institutions can no longer point to jurisdictional separation to explain limited reporting. “The more you communicate, the more you share, the better for your global program,” she stressed.
3. Operational flexibility goes a long way
Many organizations, including banks, form committees to tackle big decisions. But in a world with rapid-fire change and a nonstop data and information cycle, traditional timelines are too often reliant on the “rearview mirror.”
Data and technology enable banks to respond to crises as quickly as ever — yet the human element cannot be replaced. Financial institutions can rely on review committees for oversight but can also empower talented and trained individuals who make real-time decisions, capitalize on new information, guard against a fast-devolving scenario, and jump on potentially high-upside openings.
“Risk management isn’t just about protecting the downside — it’s also about spotting new opportunities,” Iraci said.
4. Local and regional banks should examine exposure at home
When a foreign manufacturing company opens a factory in the United States, local and regional banks have the potential to issue mortgages, automobile loans, and credit cards to these workers. The revenue opportunities that come with deposits and loans to this customer base are also vulnerable should events in distant countries or a changing political climate overall close that U.S. factory.
Broadly speaking, the health of all local industries, including the degree of their reliance on imports and exports, sways the fortunes of local banking. “Anyone with exposure to a global supply chain has exposure to [geopolitical risk],” Iraci said.
What To Look For in 2026
Assessing geopolitical risk isn’t an exact science — very often, the most important world events that move markets do not appear on analyst bingo cards at the beginning of the year. That said, astute observers are beginning to clock some signs.
One likely trend: the U.S. emphasis on Latin America trade, immigration, drug trafficking enforcement, and controversial methods of diplomacy is likely to intensify in the coming year, including the scope for sanctions. “It’s so important for banks to know their customers,” said Short, “because figures [including select Latin American leaders] often have multiple global bank accounts.”
In addition, Taiwan’s question of sovereignty in its ongoing conflict with China is not the only potential flashpoint in Asia. Iraci warned that a China-Philippines clash is a possibility, too — a classic example of an overlooked threat because of the distraction of rumblings elsewhere in a region.
With the attention of the financial services space pulled in several directions, Ludwig Advisors’ Midkiff stressed: “Being proactive is important.”
He said implementing solid frameworks can help organizations plan for fraud and AML vulnerabilities, better navigate the sanctions attached to obligations, and establish workable procedures for communication with regulators and key constituents in the financial crime space.
“Understand your global footprint and your counterparties, and keep those relationships close,” he said.
For the panel, it’s important that institutions of all sizes realize their ongoing role even with change afoot. Despite the fracturing of the global order and the rise of nationalist politicians and parties, the globally integrated economy isn’t going to disappear. The banks that are clear-eyed and successful in this uncertain era will be the organizations that treat geopolitical risk as a core competency — not a niche.
Matt Schiavenza
