The U.S. banking industry posted a solid performance in 2025, supported by higher loan and deposit growth, rising net interest income, and lower charge-offs, according to recent data. However, challenges such as unrealized securities losses and increasing exposure to margin loans and private equity remain areas of concern heading into 2026.
Interest Gap and Loan Growth
According to the FDIC, the improvement in financial performance was driven by several factors, including a wider interest rate spread—the difference between interest earned on investments and interest paid on deposits—which generates net interest income, the primary source of funding for traditional banking.During the quarter, yields on interest-earning assets rose by 11 basis points, outpacing a 2-basis-point increase in funding costs. As a result, net interest income increased by $7.6 billion, or 4.2 percent. That gain was partially offset by higher income taxes, which rose by $5.0 billion, or 30.1 percent, and higher noninterest expenses, up by $2.9 billion, or 1.9 percent.
Loan growth also contributed to the improved results. Total industry loans increased by $159 billion, or 1.2 percent, in the third quarter, led by loans to non-depository financial institutions and loans used to purchase or carry securities, including margin loans.
Margin Loan and Private Equity Risk
Despite the improved earnings, the industry continues to face challenges that could affect profitability and risk in 2025 and beyond. One ongoing issue is unrealized losses on held-to-maturity and available-for-sale securities purchased during the COVID-19 pandemic, when interest rates were near historic lows and prices for long-term fixed-income securities were elevated.While these unrealized losses fell by $58.2 billion, or 14.7 percent, from the previous quarter to $337.1 billion—the lowest level since the first quarter of 2022—the FDIC cautioned that risks remain. Long-term interest rates have not followed short-term rates lower and have stayed elevated.
Another area of concern is the industry’s growing exposure to margin loans and private equity, which generally carry higher risk than traditional lending secured by physical assets. Losses could emerge if equity markets experience a sharp correction or if high-profile private equity-backed borrowers fail.
Moody’s noted that banks’ growing interdependence with private credit firms presents heightened risks, as banks both compete with and finance these entities.
“As banks compete with non-bank lenders and simultaneously finance them, asset quality challenges may surface,” Moody’s stated in the report.
“The recent bankruptcy of Tricolor shows that bank lending to [non-depository financial institutions] can result in significant losses, and underwriting and collateral controls can fail even when loans are secured.”
Tricolor, a Dallas-based chain of used-car dealerships and a subprime auto lender, filed to convert its Chapter 11 bankruptcy case to a Chapter 7 case on Sept. 10, resulting in the liquidation of the business.
Weeks later, First Brands Group and 98 affiliated entities filed for Chapter 11 bankruptcy. The company had extensive financial ties to private lenders. The filings triggered losses for lenders, including JPMorgan Chase, Jefferies Financial, Western Alliance Bancorp, and Zions Bancorp.
While analysts view these failures as isolated rather than systemic, the events have contributed to investor caution, which may help explain why bank stocks underperformed the broader market in 2025 despite improved profitability.
Uneven Performance
David Johnson, CEO of financial services and fintech company Vervent, said the industry’s overall health has improved but that risks are unevenly distributed.“As we close out 2025, the banking industry looks healthier in the aggregate than the headlines often suggest—profitable, well-capitalized, and broadly liquid,” he told The Epoch Times.
“The more important story is that risk is not evenly distributed, and 2026 will reward banks that execute cleanly on a handful of particular issues.”
Johnson said credit quality remains generally favorable at the system level but warned of pockets of stress.
“The Fed’s financial stability work continued to flag auto and credit card delinquencies above pre-pandemic levels, even as the banking system remains ‘sound and resilient.’”
He also said that management discipline will play a larger role in determining outcomes in 2026.
“If 2025 was the year many banks proved they could defend profitability, 2026 is about sustaining it as the rate environment evolves.”
Johnson also pointed to underwriting discipline as a competitive advantage and described commercial real estate as the industry’s most significant “calendar risk.”
“Commercial real estate is less a headline about values and more a schedule problem,” he said, citing maturities and refinancing risks.
Julie Muckleroy, global banking strategist at SAS, a leading analytics and artificial intelligence software company, echoed concerns about uneven performance and slowing tailwinds.
“Net interest income (NII) showed modest improvement over Q1–Q3, helped in part by interest rate dynamics, but that was not the primary profit story,” she told The Epoch Times.
“The real growth momentum came from trading desks, investment banking fees, and capital markets activity.”
Muckleroy said geopolitical tensions created both risks and opportunities for the industry, while core lending and deposit businesses faced growing margin pressure.
“If 2025 was characterized by proving resilience, 2026 will be characterized by precision,” she said. “Strategic choices, deliberate execution, and insights turned into actions will increasingly determine the measures of leadership.”
