The Institutional Risk Analyst

“One reason why bank credit statistics look so good is that the markets remain awash in liquidity, forcing asset prices up and default rates down,” notes Whalen. "We estimate that there are now $3 trillion in unused loan commitments to non-depository financial institutions."

AMP is one of the highest valued banks in the WGA Bank Top 50 test group, currently just below 7x book value. Last year and in 2024, AMP touched 9x book value because of the strong growth in the bank’s core advisory business. The stock has traded off because of fears that AI will displace investment managers and a more general rotation away from financials after last year’s blazing performance.

Of course, in the muddled markets at present, there are a number of low-scoring banks which have done relatively well in recent weeks. The parent company of tiny Merchants Bank of Indiana, Merchants Bancorp (MBIN), for example, saw its stock price rise significantly in early 2026, 2x the S&P 500 over the past year, driven primarily by its inclusion in a major index and strong financial performance.

This change in posture by President Trump opens the way for Kevin Warsh to be confirmed by the Senate perhaps by May 15th. More important, it provides a way for Powell to retire, which opens a second governor seat on the Board. Big question: Even with the investigation by the DOJ ended, does the Trump White House have the votes to get Warsh confirmed?

“Private debt” gating retail investors is the whipping boy du jour, but not the canary in the coal mine, nor the real problem, nor the real risk. Over-investment and malinvestment in things like data centers or unprofitable business models that require cheap money and are based on hype and suspension of common sense, excessive government spending, inflation and currency debasement, populism and socialist rhetoric manifesting itself in real policy and tax decisions, these are

As we noted in our discussion with Julie Hyman on Yahoo Finance this week, the big question facing banks in Q1 2026 is disclosure about private credit. The big losers in private credit are not banks, but rather institutional and retail investors who were lured into these wholly unsuitable, structurally illiquid investments by the false public statements made by the sponsors.

Whereas in the early part of the year, mortgage lenders were looking forward to lower interest rates and higher lending volumes, the start of hostilities in Iran suddenly reversed this narrative. As we discussed this week in our podcast with Julia LaRoche, the war with Iran will likely keep inflation and interest rates elevated for months or years to come.

The average of non-interest income to assets for the more than 100 large banks in Peer Group One is 1% of assets. AXP’s non-interest income was equal to 18% of total assets at the end of 2025, putting the $290 billion asset bank in the 99th percentile of all US banks based on this measure. Add this to astute management and high asset turns and AXP is the premier bank in the US based upon market valuation.

Many banks, led by the likes of Charles Schwab (SCHW) and Bank of America (BAC), refused to restructure their bond portfolios when interest rates were lower, leaving billions of dollars in potential earnings sitting on the table. As we discuss below, SCHW had a yield on its securities book, which is almost half of the group’s assets, of less than 2% at year-end 2025. Why is this OK?

We infer the size of the NDFI portfolio of individual banks by subtracting the aggregate NDFI series of the FDIC from Other Loans & Leases. In 2010 when the FDIC first started gathering the data, NDFI loans were less than a quarter of the “other loans and leases” (OLL) category, but today they are 60% of OLL and growing fast.

If you figure that the seven year portion of the Treasury curve is around 4% today, a nearly 7% yield on EverBank's NDFI loan book seems pretty risky. But in fact the average yield on this loan category was over 10% for all 100 plus banks in Peer Group 1. So while EverBank certainly has a concentration in NDFI lending, it is not the highest yield. JPMorgan (JPM) was 5.9% in Q3, putting the House of Morgan in the 80th percentile of Peer Group 1.

The year 2025 was extraordinary period for many reasons, including low credit loss rates and soaring asset values. QE teaches us that high asset prices suppress the cost of credit, until asset values fall. UBS believes defaults in private credit could reach 15%, 3x the peak delinquency rates for bank loans in 2008.

The equity of many banks traded off in January following Q4 2025 earnings. The earnings were not bad by any means, but some investors seemingly decided to take profits after a remarkable run in banks stocks going back to last October.

The changes proposed by Governor Bowman, if made effective, will have a significant and very positive impact on banks and non-banks operating in the residential mortgage market.

The good news is that Webster is not a bad bank and SAN is not overpaying, although the low level of capital and reserves may represent be a significant expense for SAN in the near term. We kind of liked the fact that SAN’s management team had avoided another bank acquisition and instead focused on consumer finance...

The addition of Kevin Warsh as Fed Chairman does not change the ST calculus on the FOMC in terms of support for further rate cuts. Even as a former Governor, Warsh begins his term as leader of a minority on the Committee, especially if former Chairman Powell remains on the Board. This is why the inability of Trump to blame Powell for the astronomical increase in home prices, as we discuss below, is so remarkable.

US banks and nonbanks are entering a period of increased uncertainty in terms of earnings and rising credit costs, yet another reason why financial stocks are retreating. We published a comment on the risks to banks from loans to private equity funds (“Does Private Credit Hurt Bank Stocks?”). Bank credit costs have been so low for so long that they have nowhere to go but up.

GS had a remarkable year in 2025, as shown in the table below. It is good to see the firm back on track after the disastrous experiment in retail banking and credit cards. This is really one of the few pages in the GS public disclosure that has any useful information, which is a major reason that the Fed's Y-9C is must reading for analysts of Goldman Sachs.

But more to the point, the comingled worlds of private equity and credit may be the biggest scandal to hit Wall Street in a century. Most bank loans to PE sponsors "secured" by private company assets are actually non-recourse, so there is no recovery for the bank in the event of default. We think these factors are just some of the reasons that exposures to private equity and credit may be the most risky part of bank loan portfolios.

If SCHW could but find a competent team to manage the bank's assets they could vault to the top of this group in terms of financial and equity market performance. In the meantime, we hope that the folks at the Fed figure out how to publish the Y-9C and related documents for Raymond James.