Entering any kind of financial relationship with a bank requires extra attention from all the parties involved, especially in today’s turbulent global economy. Overlooking risks that might lead to huge financial and reputational consequences.
In 2024 alone, regulators issued $4.5 billion in fines against banks, most of them in the US. Meanwhile, bank (mergers and acquisitions) M&A activity is rebounding, with July 2025 deals totaling $10.8 billion — the highest in four years.
With such large sums of money at stake, there has to be the right approach to mitigate all the potential risks when doing business with a banking institution. And it’s a bank due diligence.
This article explains the due diligence process in banking, offers a practical bank due diligence checklist to follow, and suggests technology, such as virtual data rooms (VDRs), as a way to make the process more efficient, secure, and faster.
Bank due diligence is a structured process of evaluating a bank’s financial, operational, and compliance health before entering into a major transaction or partnership. It helps investors, acquirers, and regulators identify potential risks, hidden liabilities, and red flags that may affect the deal’s value or legality.
So, in short, banks due diligence is the safeguard that ensures a bank is financially sound, well-governed, and compliant with strict regulatory frameworks before money, trust, and reputation are put on the line.
To put it simply, rushing bank due diligence, or even worse, skipping it, can result in unpleasant consequences. Typically, it affects finances and reputation, at least. But there’s more.
Below are the most common consequences of skipping a structured review:
The main focus areas of bank due diligence will differ depending on each specific case. However, bank due diligence typically covers these main areas:
To make the process of bank due diligence even easier (and definitely more efficient), you should prepare a detailed bank due diligence checklist.
Here’s an example of how such a checklist can look. Take it as inspiration and customize according to your specific needs.
| Key area | Documents to review / Actions to take |
| Financials | 🔹 Audited financial statements (3–5 years) 🔹 Interim financials 🔹 Balance sheet and income statement breakdowns 🔹 Loan portfolio analysis (performing vs. non-performing) 🔹 Stress test results 🔹 Liquidity reports 🔹 Tax returns 🔹 Capital adequacy ratios 🔹 Cash flow forecasts 🔹 Details of off-balance sheet exposures 🔹 Credit rating reports |
| Legal and ownership structure | 🔹 Articles of incorporation 🔹 Banking licenses and charters 🔹 Regulatory filings with the central bank and SEC 🔹 Shareholder registry and agreements 🔹 Details of beneficial ownership 🔹 Organizational bylaws 🔹 Pending and past litigation files 🔹 Intellectual property ownership disputes 🔹 Legal opinions from external counsel |
| Operational and organizational health | 🔹 Employee contracts (executive and staff) 🔹 HR manuals 🔹 Payroll records 🔹 Pension and benefits plans 🔹 Organizational charts 🔹 Succession planning policies 🔹 Outsourcing agreements 🔹 IT architecture diagrams 🔹 Business continuity plans 🔹 Disaster recovery policies 🔹 Inventory of core equipment and facilities |
| Compliance and regulatory framework | 🔹 Regulatory compliance reports (AML, KYC, FATF, Basel III, SOX, GDPR) 🔹 Correspondence with regulators 🔹 Results of internal and external audits 🔹 Sanctions screening policies 🔹 Compliance training records 🔹 Whistleblower policies 🔹 Audit trail documents 🔹 History of fines or regulatory breaches |
| Contracts and relationships | 🔹 Customer contracts (corporate and retail) 🔹 Vendor and supplier agreements 🔹 Correspondent banking arrangements 🔹 Service level agreements 🔹 Joint venture and partnership contracts 🔹 Agreements with other financial institutions 🔹 Loan servicing contracts 🔹 Outsourcing/vendor due diligence reports |
| Corporate governance and risk management | 🔹 Board meeting minutes 🔹 Corporate finance policies 🔹 Governance charters 🔹 Internal control frameworks 🔹 Enterprise-wide risk assessment reports 🔹 Audit committee reports 🔹 Compliance committee minutes 🔹 Internal audit findings 🔹 Risk appetite statements 🔹 Succession planning for key leadership |
| Assets and intellectual property | 🔹 Intellectual property registrations (patents, trademarks, software rights) 🔹 Property deeds and titles 🔹 Insurance policies 🔹 Valuation reports for physical assets 🔹 Collateral registers 🔹 Lease agreements 🔹 Details of encumbered assets 🔹 Inventory of intangible assets 🔹 Equipment maintenance records |
| Business performance and market position | 🔹 Sales reports by business line 🔹 Customer segmentation analysis 🔹 Marketing strategies and campaign performance 🔹 Branch and channel profitability reports 🔹 Customer satisfaction surveys 🔹 Competitive benchmarking data 🔹 Pipeline of new products/services 🔹 Growth strategy documents |
| Transactions history | 🔹 Records of past transactions (M&A, restructurings, divestitures) 🔹 Past due diligence reports 🔹 Correspondence with bankers and legal advisors 🔹 Post-merger integration evaluations 🔹 History of capital raising (equity and debt) 🔹 Shareholder communication documents 🔹 Regulatory approvals for past deals |
A core part of bank due diligence is verifying regulatory compliance. Overlooking it can expose investors to fines, reputational damage, or failed deals. The main frameworks to review include:
Together, these frameworks set the baseline for safe and legal banking operations — and must be tested during due diligence.
Like any type of due diligence, bank due diligence involves thousands of sensitive documents and complex data flows that need to be shared with third parties. Logically, this process requires extra security measures and has to be easy for all sides.
This is what virtual data rooms can offer. Using a virtual data room simplifies this process, reduces risk, and accelerates deal timelines.
Key benefits include:
Choosing the right platform can make or break the efficiency of your review. A secure due diligence data room allows teams to manage large volumes of sensitive files in one place, while a specialized data room in banking adds sector-specific features that streamline regulatory reviews and investor collaboration.
Note: If you need to go deeper, explore our guide on how to make a due diligence report for practical steps to present findings clearly.
Bank due diligence is the safeguard that ensures financial institutions are stable, compliant, and free from hidden risks before major transactions move forward. By focusing on the right key areas, following a structured checklist, and leveraging secure technology like virtual data rooms, investors and compliance teams can make informed decisions and avoid costly surprises.
If you’re preparing for a bank transaction, start by setting up a secure due diligence data room to keep your process efficient, compliant, and protected from day one.
Bank due diligence typically takes 4 to 12 weeks, depending on the size and complexity of the institution. Larger banks with extensive loan portfolios, multiple subsidiaries, and global operations may require several months, while smaller regional banks can often be reviewed faster.
The most frequent risks include non-performing loans, weak capital adequacy, compliance violations, IT vulnerabilities, and hidden liabilities. Reputational risks such as past scandals or poor governance can also surface during the review and significantly affect deal value.
Regulators set the standards that due diligence must test against, including AML, KYC, Basel III, and GDPR compliance. They may also require specific approvals before a deal closes, and any gaps identified by regulators can delay or even block a transaction.
