The Institutional Risk Analyst

Half of COF assets are allocated to consumer loans, with single digits in real estate and C&I exposures. The bank was in the 94th percentile of Peer Group 1 on nonaccrual real estate loans in Q3, the 97th percentile in 90+ day past due C&I loans and the 94th percentile in 90+ day past due for other loans and leases, which includes loans to nonbanks. We expect COF to have high levels of delinquency in its consumer book, but these other credit metrics are a little troubling.

“The delinquency rate for commercial mortgages increased in the second quarter of 2025 across most major capital sources,” said Reggie Booker, MBA’s Associate Vice President of Commercial Real Estate Research. “The largest increase was among CMBS loans, driven by rising delinquencies in both multifamily and office properties. Delinquency trends continue to reflect differences in property type, loan structure, geography, and borrower profile.”

We have published the latest edition of The IRA Bank Book for Q4 2025. Entitled "Defaults Fall, Market Risk Grows," the report details how indicators of consumer credit risk are falling even as risk to financial markets from institutional and commercial credit, crypto tokens and market exposures grow. Bank income has reached record levels in Q3 2025, but what happens in Q4 2025 and 2026?

As we note in a recent article published by The Daily Reckoning, “The Bezzel: Is it 1925 All Over Again?,” that tales of woe regarding the Fed-fueled credit boom in commercial real estate and private credit will continue to grow in number in 2026.  When it comes to fraud, cockroaches are an inconvenience, but wharf rats carry the plague and are an existential threat.

With the FOMC cutting the target for fed funds one quarter point last week, we expect to see funding costs for banks continue to fall, part of the larger narrative that has seen bank loan demand and share repurchases leaving a great deal of dry powder.  Deposits are growing 2x loans, meaning that the balance must go into securities. One of the reasons that lenders of all sorts have been pushing down loan yields is to capture assets in a market that is short quality duration.

In this edition of The Institutional Risk Analyst, we ponder the world of credit and investing as sovereign nations see their debt ratings sinking below that of global corporations. Meanwhile, the price of gold is reaching new highs. Then we set up the Q3 earnings of the top-seven US depositories for subscribers to our Premium Service as we surge into quarter end with equity markets at all-time highs and global central banks turning the money spigots wide open.

If we were to select one characteristic that describes the financial markets today it would be confirmation bias. The human tendency to interpret new evidence as confirmation of one's existing beliefs or theories is among the most powerful and dangerous trends in financial markets, especially when the predominant passive investment strategies favor a net-long position. Nowhere is confirmation bias more apparent than the market for private-equity backed IPOs. 

We have little conviction behind our long positions in AXP and the SPX, thus the defensive recommendation in terms of sell orders.

As of yesterday's close, BK was right behind SoFi Technology (SOFI) leading the bank surveillance group higher. BK closed yesterday at 14x forward earnings and 1.6x book value, roughly the same PE multiple as JPM but at a lower book value multiple.

When Elizabeth Warren and Maxine Waters spoke publicly against the CapitalOne-Discover transaction, they were actually supporting the monopoly position of JPMorgan and other large banks. By opposing CapitalOne-Discover and, indirectly, supporting JPM, Warren, Waters and other progressives are actually hurting low income consumers.

Who are the two most powerful people in the Trump White House?

Some of the largest banks by assets have dropped from the top quartile into the bottom half of the distribution for the top 100 banks

Many voices in the media and elsewhere have been predicting an economic slump since 2023. Didn’t happen, but 2025 is very different.

When you see a bank with more than 10% of total assets in MBS, that's a big red flag in our book.

And just why do financial firms like HOOD, SoFi Technologies (SOFI) and Block (XYZ) talk about EBITDA in their investor materials?

Yes, net loss rates in percentage terms post default are back up to 2010 levels, but the dollar volume of net charge-offs remains very low.

The banking industry has segmented into a handful of above-average performers and JPM is the largest leader of these "winners"

Last year, when a lot of people were predicting the demise of SCHW, we told our readers to calm down.

Axos continues to rebound after the bear raid by Hindenburg Research. AX ranked 18th in the WGA Bank Top Index in Q3 2024 vs 98th for SOFI

The first comment to make is that consumer defaults are rising across the board. The only question we need to consider is the rate of change