Top-Seven Banks, NDFIs and Private Credit Risk

March 30, 2026 | The big question facing bank investors in Q1 2026 is how much credit risk faces large institutions from the meltdown in private equity and credit. In an earlier missive in The Institutional Risk Analyst, we backed into the unused credit exposure facing US banks to non-depository financial institutions (NDFIs), nearly $3 trillion in potential exposure at default (EAD). The chart below shows our estimate of the nearly $3 trillion in bank commitments to NDFIs as of the end of 2025. Significantly, virtually all of the growth in "All Other Loans" comes from loan commitments to NDFIs.

Source: FDIC/WGA LLC

The chart below of drawn exposures to NDFIs is certainly one of the more popular charts in social media over the past quarter. The chart shows $1.4 trillion in actual exposures to all US banks as of year-end 2025. On top of the existing loans to NDFIs, astute risk managers must add exposure at default, a Basel I concept that measures the additional risk that banks face if their customers draw upon unused lines and immediately default. The rapid growth of loans and commitments to NDFIs, growing at "only" 5x other loan categories, is the reason for mounting uncertainty regarding the financial stability of US banks.

Source: FDIC/WGA LLC

The mad rush of investors and lenders into the murky world of private credit is one of the more remarkably examples of stupidity and greed in the past century, going all the way back to the Roaring Twenties. The fact that the “all other loans” category for JPMorgan (JPM) increased by 24% in the past year and 73% in the past five years describes the investment mania around private strategies.

Source: FDIC/WGA LLC

In early March, financial news outlets reported that JPMorgan was marking down the value of certain loans to private credit players, which reduces their borrowing capacity and limits JPMorgan's future exposure. These steps mirror actions by other lenders in the industry and may explain why the Federal Reserve Board’s remarkably inept data function sat on the Q4 2025 disclosure for large banks until the end of last week.

Last week, Moody's Ratings downgraded the private credit fund FS KKR Capital Corp (FSK) to junk status (Ba1 from Baa3), CNBC reports, citing worsening asset quality and high non-accrual loans. This proactive downgrade of this $14 billion asset business development company highlights rising distress in the sector. This latest setback comes even as NDFIs are desperately seeking new bank loans to fund investors redemptions. If a bank lends to a private equity portfolio company that is paying-in-kind (PIK), will the bank ever be repaid?   

It is significant that the Federal Reserve Board and other regulators have so far refused to release the specific data attributable for loans to NDFIs other than the aggregate loan amount included in the balance sheet portion of the FDIC’s Quarterly Banking Profile in Q4 2025. When "All Other Loans" get to be 15% of total assets, that is the signal to break out the components.

The Board of Governors led by Vice Chairman Michele Bowman and other agencies should get ahead of this situation before investors start to run on bank stocks. Specifically, the Fed ought to provide the full disclosure for the banking industry with the Q1 2026 FDIC Quarterly Banking Profile data and also add the NDFI line item to the Y-9s for large banks. The selectively reported loss rates in GAAP disclosure are low, so why not disclose all of the data? And it would be ever so nice if the Fed and FFIEC could release the Y-9s on Day 75 after the quarter close if not sooner.

Below for subscribers to The IRA Premium Service, we consider what the Q4 2025 disclosure tells us about bank risk and earnings. 

NDFIs & Large Bank Earnings Setup

Even though JPMorgan has a loan book that is half the size of most banks compared to the total assets of the parent holding company, the bank’s $500 billion “other loans and leases” category is almost 12% of total assets vs 6% for the average for Peer Group 1. 

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 on nonbank financial firms, 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. As shown below, JPM is the only large bank that has provided disclosure about private credit exposures in its GAAP presentations.

JPMorganChase | Q4 2025

The “other loans and leases” (OLL) category at JPM is 32% of total loans vs 11% for the 128 banks in Peer Group 1, according to the FFIEC. The OLL portfolio represents 150% of JPM’s total capital vs an average of 65% for all large banks. JPM claims that its total exposure to NDFIs is $160 billion.

Clearly as a percentage of total assets and loans, the exposure of JPM to NDFIs appear to be far larger than that of other large banks, but the credit losses disclosed to date by JPM are very small. Will the publicly disclosed level of loss attributable to NDFIs at JPM and other large banks rise in Q1 2026? Our guess is that the answer to that question is yes.

Another large lender to NDFIs is PNC Financial Services Group (PNC), which had $90 billion in OLL vs $333 billion in total loans. PNC has 15% of total assets in OLL, making us wonder why the FDIC et al have not broken out NDFI loans before this time. How big would “other” need to be before the FDIC tells us the components? Once again, the prudential regulators are well behind the curve.

OLLs are 27% of PNC’s total loans and represent 150% of tier one capital. OLLs have grown 95% since 2024 and 150% over the past five years. This suggests to us that PNC was late to the NDFI party. Net losses reported at year-end 2025 were only 13bps vs an average of 16bp for Peer Group 1.

The average for all banks was 10bp for OLLs. Of note, PNC securitized $1.1 billion in OLL in 2025. The bank provides significant disclosure about its own private equity investments in its year-end 10-K, but says not a word about loans to private equity sponsors.

Another significant player is Wells Fargo (WFC), a $2 trillion depository that has exited residential and commercial real estate lending, but now seems intent upon becoming a larger, more messy version of Goldman Sachs (GS) by focusing on Wall Street. We liked mortgages better.

The OLL portfolio at WFC is the size of the entire loan book at PNC. OLL grew 40% YOY and a mere 75% over the past five years. WFC has 187% of Tier One capital in OLLs. WFC does not break out exposure to NDFIs in its GAAP reporting, but has a partnership with Centerbridge Partners to provide private credit solutions to commercial borrowers.

Bank of America (BAC), like WFC, has over $300 billion in OLLs, but the growth rate has been far lower than other banks. This suggests that BAC may have missed the NDFI party to some degree. BAC has 135% of Tier One capital in OLLs, but this is less than 10% of total assets.

U.S. Bancorp (USB) had 18% of its loan book in OLL at year-end 2025 equal to 106% of Tier One capital.  USB reported just 11bp of credit losses on OLL in Q4 2025. USB had almost 30% of total assets in OLL on balance sheet or in managed securitizations.

Citigroup (C), had just 7.8% of total assets in OLL in Q4 2025 or 28% of total loans. Citi’s exposure to OLL equaled 106% of Tier One capital at that date, but Citi also reported above-peer losses of 17bp vs the Peer 1 average of 16bp. Of note, Citi had securitized $4.6 billion in OLL exposures and has 30% of total assets in on balance sheet OLL exposures or managed securitizations. 

Truist Financial (TFC) had 13% of total assets and 23% of total loans in OLL at year-end 2025. The bank’s exposure to OLL equaled 130% of Tier One capital. TFC reported just 1bp of losses on OLL exposures and only 5bp of 30-89 days past due. Of note, TFC securitized $2.4 billion in OLL exposures in 2025. 

What all of these data points above suggest is that the top-seven banks have substantial exposure to NDFIs and that the credit loss experience, so far, is quite muted, especially compared with the public reports about credit defaults in the private credit sector. We suspect that losses on loans to NDFIs are likely to rise in 2026 and that all large banks will be forced to increase their public disclosure about same.

Bank Performance Charts

In Q4 2025, the top seven banks by assets continued to report modest levels of default activity in line with the rest of the industry.  Net credit losses for Peer Group 1 averaged just a quarter of one percent and 0.63% for the entire industry, but most of the top seven banks were above Peer Group 1 levels of loss in Q4 2025. Citigroup, as usual was an order of magnitude above the rest of the top seven banks with a net loss rate of 1.23% in Q4.

Source: FFIEC

Falling interest rates in the fourth quarter of 2025 were reflected in falling spreads on loans and securities. The gross spread on total loans and leases fell to 6.16% vs 6.36% a year before. Again, Citi was the outlier because of the relatively high gross spread on its consumer loan book.

You could argue that Citi ought to be compared with consumer lenders like CapitalOne (COF), which is now over $600 billion in assets and larger than Truist. But COF’s business model is still primarily credit cards and unsecured consumer loans, which is why we do not include it in the top seven banks. 

Source: FFIEC

The yield on securities for the group, another key source of income for a bank after the loan yield, was stable in 2025 with JPM and Citi leading the group, followed by WFC and Peer Group 1. USB, TFC and PNC are next with Bank America at the bottom of the group with a ghastly securities yield below 3%. 

The yield on a bank’s securities portfolio, like the efficiency ratio, is a direct indication of whether a bank’s management is paying attention. The chart below shows efficiency ratios for the top seven banks. A lower efficiency ratio means more of revenue drops down to the bottom line. Note that JPM is the lowest of the group with an efficiency ratio of 52%.

Source: FFIEC

In terms of the yield on securities, JPM went from the bottom of the group in 2021, when during COVID the bank had reduced the duration of its portfolio, to being the top performer in the group last year. The fact that BAC and PNC have been unwilling to restructure their securities portfolios speaks volumes about the competency of management.

Source: FFIEC

After credit results and the yield on loans and securities, we next move to funding costs, one of the most important components of any bank balance sheet. Citi naturally has the highest cost of funds at 3.24% because of the bank’s limited deposit base. Non-core funding makes up $1.4 trillion of Citi’s $2.4 trillion in total liabilities. Citi has only $640 billion in domestic core deposits and $690 billion in uninsured offshore deposits.

Bloomberg previously reported that senior leaders were weighing a regional bank acquisition in a move to boost US core deposits, but Citibank officially refuted this report and stated its sole focus is on organic growth and its ongoing transformation.

Next after Citi in terms of funding costs is BAC at 2.3%, again illustrating the ineptitude of the management team of CEO Brian Moynihan and the lingering effects of the post-COVID period, when the bank was forced to take on substantial high-cost funding. By rights, BAC should have the lowest funding costs in the top-seven banks. Instead, PNC financial at 1.9% and Truist at 1.8% are the lowest.

Source: FFIEC

One of the key ways to measure the overall effectiveness of management is the return on earning assets (ROEA). Note in the chart below that Citi is the only member of the top-seven banks that has an ROEA above the average for Peer Group 1. Next comes USB, PNC and Truist, followed by WFC. JPM is next and BAC of course is at the bottom of the group because of the bank’s poor asset returns and high funding costs. 

Source: FFIEC

Finally we look at the net income of the bank holding companies, which includes both interest and non-interest income vs total assets. Top of the group is JPM, which benefits from having substantial non-interest income. Next is PNC, which also has substantial non-interest income but mediocre net-interest income. Then comes USB, followed by WFC and Truist. Next in terms of asset returns is Bank of America with Citigroup at the bottom with an ROA of 0.54%. If you want one chart that explains the poor performance of Citigroup stock, this is it.

Source: FFIEC

In terms of the markets, the price-to-book value multiples of the top-five money center banks are shown below. Are these large banks cheap? Based upon the results of 2025, today the shares are down modestly but hardly a bargain.

JPM, for example, has retreated from almost 3x book to closer to 2x as Q1 2026 ends. Citi at around 1x book is very fully valued. While 2025 was an extraordinary year for banks, we are not currently a buyer of bank stocks because we suspect that the entire bank complex is going to get cheaper as the year progresses.

Source: Yahoo Finance

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