As interest rates continue to climb, Texas banks are adjusting their lending practices while facing increasing scrutiny from regulators.

In July 2026, the Federal Reserve raised interest rates by 25 basis points, marking the fifth increase this year, pushing the federal funds rate to a new high of 5.75%. This shift has sent ripples through the banking sector in Texas, where institutions like Texas Capital Bank and JPMorgan Chase are re-evaluating their financial strategies.

“We need to be proactive in managing our risk,” said Dan McGowan, CEO of Texas Capital Bank. “This environment requires us to assess our lending portfolios and ensure we’re not overexposed to sectors vulnerable to rising rates.”

The impact of these rate hikes is evident in the residential mortgage market. According to the Texas Mortgage Bankers Association, home loan applications have dropped by 20% since the beginning of the year, reflecting a cooling housing market as affordability concerns mount.

Moreover, commercial lending has also slowed. Data from the Dallas Federal Reserve shows that commercial loan growth in Texas has decelerated to just 3% in the second quarter of 2026, down from 10% a year earlier. Many banks are reconsidering their risk appetite, especially in leveraged buyouts and hospitality sectors, where defaults are becoming more common.

In response, Texas banks are integrating technology to enhance their risk assessment capabilities. Frost Bank, based in San Antonio, has announced an upgrade to its analytics platform, allowing it to better predict loan performance under varying economic conditions.

While the landscape remains challenging, some Texas banks are capitalizing on the higher rates to expand their deposit bases. Reports indicate that banks like Prosperity Bank are now offering competitive savings rates, attracting customers looking for safety amid volatility.

“We’re seeing an influx of deposits as consumers seek stability,” noted Greg Wilkins, CEO of Prosperity Bank. “It’s a silver lining in a challenging economic environment.”

As Texas banks navigate this complex landscape, their adaptability will be crucial in weathering the economic storm ahead. The industry is keeping a close watch on the Federal Reserve's next moves, as further hikes could significantly reshape financial strategies across the state.