"Defying Gravity — Can non-US wholesale banks win in the new world order?" is the 2025 edition of our annual wholesale banking industry outlook with Morgan Stanley. In this edition, we examine how geopolitical shifts could impact the wholesale banking sector and the potential impact on American dominance in the space.

The United States has been the gravitational force in the global wholesale banking market for decades. US asset owners hold over $65 trillion in assets (45% of global asset ownership) today and the US capital markets have consistently delivered superior returns compared to other regions. This is the foundation for the deep, liquid markets that have attracted 70% of asset allocations, captured more than 65% of global trading volumes, and allowed US financial institutions to dominate the global wholesale banking market. The top 6 US wholesale banks capture 32% of global wholesale banking revenues and 44% of Core CIB (IBD and Markets) revenues. No other cohort of wholesale banks comes close.

The current geopolitical climate may disrupt this equilibrium

Most global investors expected the new US administration to pursue a growth agenda that would reinforce the existing world order — stronger economic growth in the US and ever more dominance by US markets and financial institutions. However, the evolving implications of the administration's trade and tariff policies has challenged that assumption. It is too early to predict any outcomes, but global investors have already revealed their concerns by rotating away from US assets before and after the tariffs were announced in April. This shift is also catalyzing renewed political support for capital markets reforms outside the US, such as the Savings and Investment Union in Europe. The big question facing the industry now is: Will these developments shift the competitive balance in the wholesale banking markets away from US trading venues, away from US capital markets, and away from US financial institutions?

Can the Wholesale Banking industry defy gravity?

The dominance of the US (and US institutions) in wholesale banking is a powerful force. The US has extended its advantage over the course of several decades, so change will not come easily or swiftly. However, we have seen significant shifts in the wholesale banking markets before — most notably in the 1970s when Richard Nixon pulled the US dollar off the gold standard, imposed import tariffs, and introduced price controls. This clustering of major policy changes fueled a spike in financial innovation (creation of instruments to hedge interest rate and currency risk), investor shifts to gold and real assets, market structure shifts to increased use of bonds vs. bank loans to raise capital, and regional economic integration (contributing to the creation of the eurozone to provide stability from currency volatility in the floating exchange rate system). The current wave of policy changes has a similar potential for triggering unexpected and long-term structural shifts in financial markets and the real economy. But to what extent will that challenge US dominance?

We test this question under three scenarios. We have framed three plausible scenarios for the global economy and wholesale banking markets:

• A multipolar world, arising from a weakening of the American dominance and US financial institutions (modeled broadly on the structural shifts that played out in global markets after the Nixon Shock in the 1970s)
• A deepening of American primacy, reinforcing the dominance of US markets and institutions in Wholesale Banking (modeled on the gradual transformation and consolidation of the wholesale banking industry over the past 15 years)
• A global contraction, with global economic shocks followed by a prolonged period of risk aversion (modeled on a less extreme version of the global financial crisis)

Gravity always wins

Under even the most extreme versions of the multipolar world scenario, it is difficult to break the dominant position of the US markets and US wholesale banks over the medium term, although we see a material opportunity for European and Asian banks to grow and gain market share. Up to 5% of Core CIB revenues ($20-25 billion) could exit the US market in a scenario where the US administration follows through with extreme policy actions, European and other international policymakers respond with coordinated and effective actions to drive growth and competitiveness of regional financial markets, and the US (negative) and international (positive) economic outlooks diverge. However, in every scenario the US likely remains the leading center for wholesale banking given the dominant starting point. Large US institutions are also especially well positioned to defend their strong position in EMEA (38% share vs. 27% share for European Majors) and APAC (25% vs. 20% for Asian Majors) in the Core CIB businesses poised for the strongest growth. Oliver Wyman's survey of investors and corporates in Europe and Asia supports this view.

There is still a lot to play for and the outlook will matter

A single percentage point shift in global asset allocation will drive $1.5 trillion in capital flows, so this period of disruption will create significant opportunity. Two of our three scenarios are favorable for industry outlook across all regions, resulting in positive revenue growth and industry RoE. We believe the greatest shifts in revenue pools and market share, as well as the greatest overall growth in global revenues, will occur in the multipolar world scenario (a surprising outcome given the level of geopolitical tensions and fragmentation). However, there are opportunities and threats in any scenario. Market participants’ perceptions of how the current situation is most likely to evolve is pivotal, driving meaningful strategic choices, such as whether to invest in US wholesale banking (stronger American primacy) or redirect investment into growing markets elsewhere (multipolar world).

Policymakers will determine the path

The multipolar world is the most interesting and disruptive scenario, but also the most dependent on the actions of policymakers around the world. Both the need for, and the policies required to create more robust financial markets and competitive financial institutions in Europe (and Asia) have been known for some time. However, policymakers have not yet been able to overcome significant political and technical hurdles to reform. Investors and bank management teams must believe this time is different to anchor their strategies on these outcomes. And the US administration may reduce the burden on US financial institutions by relaxing capital requirements in the coming months (e.g., through recalibration of the Supplementary Leverage Ratio, GSIB surcharge, and stress capital buffers), improving the relative attractiveness of wholesale banking activity and creating more capacity to pursue growth opportunities around the world.

Most non-US banks will need to reposition to win

Very few wholesale banks domiciled outside the US are positioned to shift the competitive balance effectively in either the multipolar world or stronger American primacy scenarios (no wholesale banks perform well under the global contraction scenario). There are several drivers of these competitive disadvantages:

• Under-allocation of financial resources to wholesale banking
• Under-investment in technology infrastructure, capabilities, and innovation
• Structural orientation toward corporate banking as the institutional wallet expands (as sponsors play a greater role in corporate finance, investors rotate asset allocations, etc.)
• Structural orientation toward financing and treasury services as the advisory wallet expands with the recovery of M&A
• Structural barriers in the US Wholesale Banking market, with potential for further raises to barriers from proposed regulatory and policy changes
• Competition for talent

We see strong evidence that some non-US banks are beginning to position for this opportunity and taking steps to close the gaps with US players, particularly to win back market share in their home regions that the US banks have captured since the global financial crisis. Some non-US banks already have strong market share in key products in their local markets — these banks will have a head start in the multipolar world scenario. But there is much work to be done and substantial support required from policymakers to create the conditions for major shifts in global market share.

All institutions (especially US banks) face challenges from rapidly evolving market structure

US wholesale banks are expected to receive some capital relief as part of the new administration’s deregulation agenda, helping them to fend off pressures from non-banks who face lower regulatory constraints and costs. However, other aspects of deregulation could increase the competitive pressures on the largest US wholesale banks — relaxing bank consolidation restraints will help US regionals scale up, approval of bank charters for non-banks will bring new entrants into the market, etc. And the wholesale banking markets continue to be reshaped by the rapid growth of the private markets and alternative sources of liquidity provision. New trends, such as the expanding stablecoin market, could fundamentally reshape payments and core banking functions that drive CIB revenues in transaction banking and corporate FX. The largest US wholesale banks hold a strong position heading into a more fragmented world, but management teams cannot be complacent and will need to move decisively to preserve their advantage.