February 11, 2026  | Today the The Institutional Risk Analyst  publishes a new feature for subscribers to our Premium Service , The WGA Precious Metals Top 25 . Over the past year, we have assembled an eclectic list of miners, producers and ETFs that provide our readers with ways to create exposure to gold and silver markets. As with our WGA Bank Top 50, we provide our full surveillance group for the information of our readers. We created the Precious Metals Top 25 through our own research and discussions with veteran asset managers around the world. Our goal was to create a representative list of stocks that can give our readers exposure to gold and other precious metals. We think of the list as a point of departure for investor research and also a benchmark for market movements in precious metals. With the sharp move upward in gold and silver prices, and growing concerns about the stability of the dollar and US financial markets, investor interest in precious metals is increasing dramatically. Despite the big price movements seen in 2025, we believe that the appreciation of gold against the fiat currencies and worthless crypto tokens is in the early stages.

February 9, 2026  | Last week, Adam Josephson  published an interesting comment about the Treasury program to repurchase existing government securities . Why is the Treasury buying back existing notes and bonds, and issuing new debt, sometimes at a higher cost? For the same reason that caused the stock of PennyMac Financial (PFSI) to crater  last week thanks to the MBS purchases by the GSEs, namely duration . Few people in finance actually understand the bond market much less geeky subjects like option-adjusted duration (OAD), a key concept in the mortgage and asset management communities. You need to have friends like Alan Boyce , Fred Feldkamp , Lee Adler and Adam Quinones to beat you about the head and shoulders until you "get it." The famous Boyce napkin illustrating the value of mortgage servicing rights (MSRs) is below. The Federal Open Market Committee under Chairman Jerome Powell  frantically began to push interest rates down in January 2019 and began to buy trillions in low-coupon Treasury debt. By doing this, the Fed drained duration out of the market and thereby caused interest rates to fall. This also created a massive interest rate ghetto for dealers, banks and bond investors. The Fed’s ill-considered actions distorted the financial markets and also forced home prices up double digits.  Simply stated: The low-coupon bonds issued during COVID have a longer duration  than current coupons with higher yields, making the Treasury market more volatile. A T-bill maturing tomorrow has a duration of one day, for example, but a 30-year zero coupon Treasury bond has a duration of 30-years and far greater volatility. Think of duration as a weight, pushing down on bond prices and raising bond market yields. A new 30-year Treasury bond maturing in November 2055 with a 4.625% coupon, has a Macaulay duration  of approximately 15 to 17 years. The 10-year Treasury note has a still high sensitivity to interest rate changes, aka volatility, but far less than the 30-year zero coupon Treasury debt or a mortgage-backed security with variable duration . The variability of duration in MBS caused Silicon Valley Bank to fail. Dealers paying SOFR at 3.75% plus say 1-2% are not interested in holding Treasury debt or agency MBS or loans with coupons below 5%. While Treasury has purchased premium securities with higher coupons  as part of repurchase operations, today the priority ought to be retiring COVID-era Treasury debt. Bonds with higher coupons trading at a premium to the market are more stable. The chart below from the FRBNY shows SOFR through last week. Source: FRBNY Generally the Treasury’s repurchase of existing debt is limited by available cash. But when the Treasury repurchases a low-coupon bond issued during COVID at a discount and then issues a new bond at current rates, the agency actually generates net cash in the short-term but has a higher total cost over the life of the bond. Yet the bond market, investors and the Treasury itself benefit far more from repurchases of low coupon debt in terms of lower market volatility.  By repurchasing the low coupon securities, the Treasury also reverses the damage of the FOMC under Chairman Powell. As we’ve noted previously, the actions of the Powell FOMC merely continued the equally confused thinking of the Fed under Chair Janet Yellen (2014-2018). Yellen, Powell and their colleagues on the FOMC apparently thought that the central bank could control the long end of the yield curve.  Wrong. Of interest, the restart of net T-bill purchases by the FOMC for the system open market account (SOMA) in December is reducing the need for the Treasury to issue T-bills to the public. John Comiskey  notes in Reverse Engineering Finance : “Not only did Treasury leave the coupons alone this QRA but their forward guidance indicates continuing to do so for “at least the next several quarters”. Their mention of the SOMA Treasury bill purchases is also noteworthy. Treasury understands that those purchases will soon enough reduce Treasury’s need to issue bills (or coupons) to the rest of the public. The Fed indicated these purchases would slow down after April. How much they slow it will likely be a significant input to Treasury’s coupon levels calculus late this year.” In The Wrap this past week (“ The Wrap: Pulte Crushes PennyMac; Kevin Warsh's Conflict of Visions “), we noted that when the Fed’s balance sheet grows via open market purchases, bank deposits grow dollar-for-dollar, indirectly pushing up asset prices and inflation. Yet the political attraction of the Fed purchasing government is unavoidable, one reason we think that Warsh’s statements about shrinking the Fed balance sheet will ultimately be unrealized.  Treasury Debt as Tax Assets The Treasury can accelerate the retirement of low-coupon, COVID era debt by taking a page from Argentina and treating all government obligations as tax assets. Last April we asked whether the Treasury ought to accept debt in payment of tariffs and/or taxes (“ Should Treasury Accept Debt for Tax Payments? Bank OZK Update ”).   Accepting tenders of Treasury debt at face amount for tariff or tax payments will supercharge the buyback process so as to eliminate all of the discount coupons in the government debt market. Doing so would lower market volatility and incentivize dealers and investors to hold the remaining paper, pushing market yields down. We wrote: “High interest rates are a problem, but so too are low rate securities left over from COVID. Back in 2024, the US Treasury began a program to repurchase low coupon bonds in the open market in order to improve market liquidity. If you are a small dealer or fund paying SOFR +1% for money from your friendly neighborhood bank, you don’t want to own a Treasury note paying 0.125% per annum.  More than half of the Treasury note market is more than 10 points under water at todays yields and therefore illiquid.”  It may seem counter-intuitive, but by removing the low coupon, high duration bonds from circulation, the Treasury can reduce the average duration of all public debt and thereby encourage LT interest rates to fall . Bonds with high coupons will be sought after by dealers and LT investors alike, pushing down Treasury yields and also interest rates for corporate debt and residential mortgages. Indeed, we think that the Treasury should adopt a standing policy to encourage investors to buy and redeem discount notes and bonds for tariff and/or tax payments.   The chart below shows the 323 issues of Treasury notes outstanding by coupon rate. The unweighted average coupon is 3% and the median coupon is ~ 3.5%.  Yet the duration of the bonds below 3% coupons is much, much larger than the half of Treasury notes above 3% average coupon. The weight of the duration, if we think of it in physical terms depresses bond prices and forces yields higher. Source: US Treasury Fannie Mae and Freddie Mac have been repurchasing current coupons, for example, but they ought to focus their open market operations on low-coupon MBS. Trouble is, holding MBS with 2 and 3 percent coupons in portfolio will generate significant losses for the GSEs. The Fed could to take all the $2 trillion in MBS in the SOMA and repackage the debt into collateralized mortgage obligations (CMOs). The Street can easily sell the Fed CMO bonds to insurers and pensions, and bury the duration forever. Doing so would actually help LT interest rates to fall. Indeed, the GSEs ought to do the same with MBS purchased to date. Issue CMOs, bury the duration. Bottom line is that if President Trump wants LT interest rates and especially residential mortgage rates to fall, he should ramp up Treasury repurchases of low coupon government notes and bonds currently trading at a discount.  Also, President Trump should direct FHFA Director Bill Pulte to restructure MBS purchased by the GSEs into CMOs of different maturities.   Banco Santander SA + Webster Bank = ? Banco Santander SA (SAN)  announced an agreement to acquire Webster Financial Corporation (WBS) , the parent company of Webster Bank, in a deal announced on February 3, 2026. The transaction is valued at approximately $12.3 billion, a ~ 10% premium to WBS market cap prior to the announcement. The deal is expected to close in the second half of 2026, subject to regulatory and shareholder approvals. We suspect this deal will get approved quickly, one reason that you're likely to see more M&A transactions this year. SAN is a dominant retail bank in the EU with over 178 million customers, although it ranks behind BNP Paribas and Crédit Agricole in terms of total assets. In the US, SAN operates through $175 billion asset Santander Holdings USA (SH USA) , which owns $104 billion asset Santander Bank, N.A. (SBNA) and Santander Consumer USA (SC). Below we provide our specific thoughts on the transaction for subscribers to our " Premium Service. "

February 6, 2026 | This edition of “The Wrap” features our view of the key events in Washington and on Wall Street over the past week. Don’t forget to watch the podcast of “The Wrap” on The Julia LaRoche Show  every Saturday. Our discussion of what’s hot and what’s not in the world of finance and investing is not to be missed! Bill Pulte Crushes PennyMac The big theme this week in the markets is risk off as asset classes from precious metals to AI software stocks took a drubbing. We described the carnage at market leader PennyMac Financial (PFSI)  for our Premium Service  subscribers. Is it really possible that PFSI’s retention of prepayments off of its servicing book were below 30%? Yup. But PennyMac may not be to blame. (See “ PennyMac: Hedging Costs & Residential Loan Recapture Crater the Stock ”).  We hear that the PennyMac fiasco was largely caused by FHFA Director Bill Pulte and the Trump Administration. Most people in the markets don't realize that the GSEs already bought a ton of mortgage-backed securities (MBS) in Q4 of last year. This market manipulation in Q4 was not announced publicly and tightened mortgage spreads 15-20bps. The GSE purchases of MBS increased assumptions of mortgage prepayment speeds without a corresponding offset from hedges in the Treasury market. This set up PennyMac and other mortgage lenders for a disaster. Buyers of excess I/O strips are pretty unhappy as well. Since the January 8, 2026, announcement, when President Donald Trump directed Fannie Mae and Freddie Mac to purchase an additional $200 billion of their own MBS, spreads have tightened an additional 10bps. Trump’s order was aimed at lowering high mortgage rates and boosting housing affordability, but instead he caused significant losses for some mortgage lenders and investors. As Peter Wallison of American Enterprise Institute wrote this week: " Our leaders are not serious people. " Specifically, the MBS purchases by Fannie Mae and Freddie Mac increased demand for bonds, which helped decrease mortgage rates – but only for a brief time.  The appreciation of MBS crushed buyers of interest-only securities (IOs), as model speeds for prepayments are now faster and option-adjusted spread (OAS) values lower. How is this helpful? The members of the trial bar investigating the Q4 earnings release of PennyMac ought to be interviewing FHFA Director Pulte. AI, Silver and Crypto Sink Another casualty of dashed earnings expectations was PayPal Holdings, Inc. (PYPL) , which has lost half of its market cap in the past year.  The sharp sell-off was driven by a miss on quarterly expectations, a weak 2026 earnings outlook, and a sudden leadership change that suggests deeper issues with the fintech issuer. We’ve been concerned about PYPL’s vulnerability to competition from the myriad of new payments platforms since last year (“ Fear & Loathing in Credit; Update: PayPal Holdings ”).  Spot silver retreated by more than a third from an all-time high last week, answering the question from several readers about why we prefer gold to silver.  As we discuss at length in “ Inflated: Money, Debt and the American Dream ,” silver is no longer a monetary asset and has not be used as money since the latter part of the 19th Century. Gold, on the other hand, is being restored as the chief monetary asset held by central banks. We continue to view silver as primarily a speculative commercial commodity and gold as a monetary asset supported by central bank buying.    AI Goes Into Space? Meanwhile, Elon Musk’s  SpaceX acquired his artificial-intelligence startup xAI in a record-setting deal that unifies Musk's AI and space ambitions by combining the rocket-and-satellite company with the maker of the Grok chatbot. The deal, first reported by Reuters , represents one of the most audacious tie-ups in the technology sector but may also reflect the growing weakness in investor support for AI.  As Yahoo Finance noted this week: “ AI is starting to eat its own.” Meanwhile, this week Musk stated that space-based AI is "obviously the only way to scale" to meet the growing demand for computing power. Following the merger of his AI company xAI with SpaceX, Musk outlined a strategy to move large-scale AI computing from Earth to orbit in order to use solar power for AI development. Since political opposition to AI-based power facilities is growing around the world, Musk's statement may be both practical and also a death knell for other AI ventures dependent upon terrestrial power generation. If Musk is able to put his space-based AI architecture into action, other AI ventures may no longer be viable financially or technically. The only question: How to put advanced computer chips into the harsh environment of space? Kevin Warsh’s Conflicted Vision The conversation continues around the appointment by President Trump of Kevin Warsh to be the next Fed chair, a decision we heartily support. The big question, however, is whether Warsh can actually cut the target for federal funds without causing the long end of the yield curve to rise given the Treasury’s massive need for cash. Every time the Treasury completes a new refunding, long-term interest rates rise. The other big question for Warsh given the Treasury’s deficit is his desire to further reduce the size of the Fed’s balance sheet.  As readers of The Institutional Risk Analyst know very well (“ Logan Riffs on SOMA; XYZ and SYF Say No Recession Yet ”), when a Treasury security matures on the Fed’s balance sheet, the Treasury must refinance this liability immediately. This dynamic illustrates why the size of the Fed’s balance sheet is directly related to the size of Treasury indebtedness, the banking system and thus inflation of asset prices. If the Fed is not replacing securities that run off the SOMA portfolio, then the Treasury must sell the new debt to a private investor and a bank deposit disappears. When the Fed is a net buyer of Treasury securities, primary dealers sell securities to the Federal Reserve Bank of New York and the Fed credits their master account, creating a new bank deposit. When the Fed grows its balance sheet, the size of the US banking system increases, asset prices rise and inflationary pressures grow.  Now President Trump has indicated that he wants home prices to remain high, a goal that is directly in conflict with Warsh’s stated desire to see the Fed’s balance sheet shrink. While we continue to expect a home price correction ~ 2028 due to changing market dynamics, a resumption of “quantitative tightening” or QT by the Federal Reserve Board is likely to accelerate a downtown in the housing market. Should Warsh win confirmation, its is not clear to us that there is a majority on the Board of Governors to resume QT. One big reason is that conditions in the US repo market are currently tight, characterized by increased volatility, elevated borrowing costs, and, as of late 2025/early 2026, unusual Federal Reserve intervention.  The Secured Overnight Financing Rate (SOFR) has occasionally risen above the interest paid on bank reserves (IORB), signaling, at times, exceptional demand for cash and limited liquidity.  It's interesting to note, for example, that Morgan Stanley (MS) reported paying 45% for REPO funding last year. The table below comes from Page 77 of the MS Q4 Form 10-Q. If a future Chairman Warsh pushes the Fed to resume shrinking the balance sheet, then he may repeat the mistake made by Jerome Powell in Q4 2018 (“ The Martyrdom of Jerome Powell ”). The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

February 3, 2026  | Updated | Last week the financial markets were roiled when PennyMac Financial (PFSI) , the #2 aggregator nationally in residential mortgage loans, badly missed the Street’s earnings targets. PFSI EPS fell short of expectations at $1.97 compared to the forecasted $3.12 per share in Q4 2025.  Revenue also disappointed the Street's admittedly inflated expectations, coming in at $538 million against an impossible forecast of $637.49 million, but the Street estimate was never even remotely realistic. Sometimes stock analysts are misled by rising equity market valuations and this is a case in point. But as we noted in our last comment, 2025 was the year of aspiration and hype. This year is shaping up to be very different. More important than illusory Street expectations, however, was market conditions and that dangerous buzzword "affordability." Analysts assumed an improvement in the firm’s hedging results – a considerable stretch – which caused more than a few investors and analysts to lean into the stock.  But the key factor that generated investor angst was under-performance in terms of loan recapture, an illustration of the hyper-competitive market in residential mortgages. True retention = Retained fundings divided by total run off. On that basis, we figure that PFSI retained less than 1/3 of mortgages that prepaid in Q4 2025. After touching $160 in late January, PFSI closed yesterday below $95 per share and pulled down other mortgage names as well.   Source: Google Finance

February 2, 2026  | Over the past several months, we have described to readers of The Institutional Risk Analyst the steady retreat of large-cap bank stocks we track in the WGA Bank Top 100. Suffice to say that large US banks are now in full retreat and they have a lot of company with independent mortgage banks (IMBs) likewise getting shellacked. As Q1 earnings roll in for the remaining public filers, it only gets better from here.   For subscribers to the Premium Service  of The IRA , we provide a summary of our bank test results on the IRA website. The WGA Bank Top 100 test group is subjected to five measures focused on market returns and fundamentals. Of note, the average deviation between test subjects widened very dramatically since Q4 2025, indicating much higher variability and lower consistency in the group. A number of smaller bank stocks have risen in the rankings, but mostly because the larger cap names are falling faster.  Consider some striking examples: American Express (AXP) ranked #1 in Q4 2025, but fell to 11th in the latest WGA Bank Top 50 ranking because of poor market performance.   Goldman Sachs (GS) ranked 11th in Q4 2025 but has risen to #1 thanks to strong earnings and market performance.  Morgan Stanley (MS) maintained its position at #3 in Q1 2026, but Northern Trust (NTRS) rose from 13th to 2nd. Again, other names fell away. SoFi Technologies (SOFI)  was #2 in Q4 2025 and is another example of a leader in 2025 that has fallen back, in this case to 39th in Q1 2026.  JPMorgan (JPM) ranked 5th in Q4 2025, but has fallen to 41st because of poor market performance. What does it suggest when JPM retreats so rapidly to the middle of the group? There continues to be an enormous amount of churn in the top 50 banks. Goldman Sachs and Citigroup (C) are the only two large institutions in the top 25 this quarter. Citi dropped from 16th in Q4 2025 to 25th in Q1 2026. Names like tiny Lending Club (LC) , which led the bank group in the second half of 2025, have since fallen back due to concerns about soft Q1 2026 guidance, concerns over core EPS missing expectations, and high share price volatility. The fact that the Federal Open Market Committee is unlikely to cut interest rates in 2026 is another factor weighing on bank stocks. In a recent commentary (“ The Martyrdom of Jerome Powell ”), we noted that Fed Chairman Jerome Powell may remain on the Fed’s Board of Governors through the end of his term in January 2028.  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. More importantly, banks and nonbanks alike are entering a period of increased uncertainty in terms of earnings and rising credit costs. Last month we published a comment on the risks to banks from loans to private equity funds (“ Does Private Credit Hurt Bank Stocks? ”).  The latest Treasury refunding of a mere three quarters of a trillion dollars illustrates why that the bias in LT yields and residential mortgage rates is higher in 2026, yet this factor is never discussed. There is an enormous amount of forbearance by large banks with respect to defaulted loans to private equity firms and other non-bank financial institutions (NBFIs). As we've noted previously, principal paid in kind on original principal or "POOP" is a default by any other name. The amount of fraud and concealment involved in private equity loans is equally large. Larger bank stocks are retreating in 2026 because savvy investors suspect that bad news is coming on the commercial side of the ledger. The stated default rates across most banks remained low in Q4, but we suspect that will not be the case for much longer. Even though ST interest rates have fallen in the past year, the festering credit problems in private equity and credit, and commercial real estate, are likely to be in the headlines for banks through 2026. But the big risk headed for US markets in 2028 is a maxi correction in home prices. Remember, misery on the 8s. Subscribers to the Premium Service of The Institutional Risk Analyst may view the latest WGA Bank Top 50 results by logging into the website.  An Excel copy of the entire 100 bank test group of bank holding companies and unitary banks is also provided. Mortgages and Affordability President Donald Trump said during a press conference last week that his administration will keep home values high while expanding ownership, arguing rising prices build household wealth. This is a remarkable statement, yet nobody in the big media challenged his assumptions. With the Treasury raising trillions in new debt in 2026, exactly how do mortgage rates fall? In fact, the reality in the market is just the opposite. High home prices caused by the Powell FOMC have masked the cost of default even while shielding the government and investors from the cost, but this is hardly a normal state of affairs. High home prices have hidden the financial cost of default, but politically the top agenda item is "affordability" due to the Fed's massive inflation of home prices. As the cost of credit again reappears, valuations for banks and nonbanks alike will suffer. When you see that loss given default on large prime bank mortgage loans is still ~ zero, but delinquency on FHA loans is at 11% and climbing, that tells you that home prices generally are headed for an eventual and substantial correction. Insiders in the mortgage industry are anticipating a tough year ahead and further forced consolidation in an industry that still cannot manage to make consistent profits even with mortgage rates near 6%. Remember that high home prices subsidize the cost of default, even on the risky FHA/VA/USDA market served by Ginnie Mae. But low average coupons left over from COVID for the $14 trillion in 1-4 family mortgages locks in half of all assets from the market. The chart below shows the distribution of coupons in the $3 trillion Ginnie Mae market from that agency's excellent Global Market Analysis report . The good news is that mortgage rates have fallen 1% in the past year. The bad news is that the average residential mortgage coupon in the industry is just barely above 4%. Even though mortgage rates have fallen a point to ~ 6.25% today, home prices remain 10-20% too high in most markets for new home buyers to make up a significant portion of volumes. And those older northeast millennials sitting happy in the winter cold with 3% mortgages have no reason to sell. Eventually Congress will be forced to waive capital gains taxes on residential homes to spur sales and free up supply. As a result of the "lock-in" effect of ultra low interest rates, refinance volumes are rising much faster than volumes for purchase loans and that trend is likely to continue, thwarting election years stunts to help affordability. Even if the Warsh-led FOMC were to push short-term interest rates down into the 2s, home prices are still too high in terms of affordability. Does President Trump understand this conundrum? Probably not nor does Trump's team seem to appreciate the true reason that Chairman Powell should resign, namely excessively high home prices caused by too much for too long by the Yelln/Powell FOMCs. How is it that President Trump's communications team could not hang the burning tire of home price affordability around the neck of Jerome Powell? “I don’t want those values to come down,” said Trump absurdly, referring to high home prices. “We have millions of people that own houses and, for the first time in their life, they’re wealthy because the house is worth $500,000 or $600,000 or more or less, but more money than it’s ever been worth before. I don’t want to do anything to knock that down.” The national pastime in America, after all, is inflation. Source: FDIC/WGA LLC The familiar chart above shows net losses by banks on prime residential mortgage loans near zero, another way of saying that home prices are way too high. The 50-year average net loss on bank owned 1-4s, excluding the period of COVID, is around 70% of the loan amount. Notice in that same charts that the loss rate on relatively prime bank multifamily loans is near 100%, an illustration of the vast amounts of fraud in commercial lending. A 2026 FHFA OIG report detailed a 2023–2024 spike in multifamily fraud, with open investigations rising from 14 to 193. Fannie Mae adjusted its allowance for loan losses by over $400 million, driven by fraud in loans originated between 2020 and 2023. We suspect that credit expenses for both GSEs due to fraud in multifamily loans will increase. The true crime of the Yellen/Powell FOMCs was forcing down the cost of default in 1-4 family loans to less than zero by expanding the Fed's balance sheet grotesquely. The Fed's reckless experiment with the US economy not only pushed up home prices, but enabled a period of fraud and speculation that is now in process of collapsing upon itself. Yet incredibly, the Trump White House is incapable of articulating this issue in public. More, Chairman-nominee Kevin Warsh has a problem if he really, really thinks that he can reduce the Fed's balance sheet significantly from currently levels. Indeed, further rate cuts by the Fed may push LT interest rates higher , killing any benefit for lenders or home owners. We suspect that the Fed will be forced to increase bond purchases before too long, another reasons that investors are running out of financials. The chart below from FRED shows the Fed's system open market account (SOMA). Just as banks and many other sectors of the stock market are likely to give back the supranormal gains of 2025, the 50% appreciation of home prices since 2020 also is long overdue for a correction.  Read our biography of Stan Middleman who made the call on "Misery on the 8s" years ago. In the next Premium Service  edition of The Institutional Risk Analyst , we’ll be reviewing the results for PennyMac Financial (PFSI) and talking about the outlook for the mortgage sector in 2026.  As a longtime reader of The IRA who works in the bowels of the mortgage industry wrote to us: "After reading a bunch of stuff from street analysts, it seems that PFSI’s earnings miss caught them by surprise. The miss was very significant, and combined with their forward guidance, a very negative representation of prospects for the industry. Street consensus for EPS was $3.23 but came in at $1.97, a 39% miss. Revenue came in $101mm below consensus a 16% miss." The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

January 30, 2026 | This Friday’s edition of “The Wrap” features our view of the latest events in Washington and on Wall Street over the past week. Don’t forget to watch "The Wrap" on The Julia LaRoche Show  every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. The big news for investors this week is precious metals. In January 2026, gold and silver prices saw dramatic surges, with gold gaining over 20% to reach record highs above $5,500 per ounce, driven by geopolitical tensions and growing currency debasement concerns. Silver outperformed gold, jumping nearly 50% to over $110 per ounce in early 2026, driven by intense demand and a generally weaker U.S. dollar. As of late January 2026, bitcoin had experienced a significant decline when measured against gold, with the token-to-gold ratio falling by approximately 40% from recent highs to around 15.9 ounces. This drop indicates that gold has substantially outperformed bitcoin during this period. Remember, when the price of gold rises, the metal is simply reflecting the decrease in value of the exchange medium, whether measured in dollars or bitcoin. As we’ve noted in The Institutional Risk Analyst , both gold and silver are long-overdue for a correction, but remember that global central banks remain buyers of gold and sellers of dollars. The demand/supply dynamic with silver is different, but both metals are reacting to dollar weakness and a lack of confidence in the ability of the US government to address fiscal deficits.  The value of central bank gold holdings now exceeds foreign holdings of US Treasury debt for the first time in decades. We’ll be reviewing our precious metals surveillance group in a future issue of The Institutional Risk Analyst . Our Premium Service subscribers have access to our custom surveillance lists for banks, non-bank finance companies, mortgage companies and precious metals.  The Federal Open Market Committee left the target for ST interest rates unchanged this week, confirming our view that there is no majority on the FOMC for further rate cuts. The comments this week by Federal Reserve Chairman Jerome Powell  did nothing to instill greater confidence in the United States or reduce the level of LT interest rates:  “The U.S. federal budget deficit is uncontroversially on an unsustainable path. The level of debt is not unsustainable, it's very much sustainable. But the path is unsustainable. And the sooner we work on it, the better. But, right now we're running a very large deficit at essentially full employment, and so the fiscal picture needs to be addressed. And it's not really being addressed. So that's important, I'm not in any way connecting it to some sort of near-term market event. But ultimately it's something we'll have to deal with, and in the end—in the end game, that's where you wind up is in some kind of a difficult thing. But that's not where we are, it's not where Japan is either. But, it's certainly not where we are right now.” On Monday, Whalen Global Advisors will release our the WGA Bank Top 50  rankings for Q1 2026. The WGA Top 50 Bank rankings represent the best performers among more than 100 publicly traded banks over $10 billion in total assets. WGA scores the entire population of banks using a proprietary model where size is only one factor in the analysis. All of the constituents of the WGA Bank Top 50 are available to subscribers to the IRA Premium Service . There continues to be an enormous amount of churn in the top 50 banks. Goldman Sachs (GS) and Citigroup (C) are the only two large institutions in the top 25 this quarter so far. Names like Lending Club (LC) , which led the bank group in the second half of 2025, have since fallen back due to concerns about soft Q1 2026 guidance, concerns over core earnings missing expectations, and high share price volatility. SoFi Technologies (SOFI)   is another example of a bank group leader in 2025 that has fallen back.”  We'd be looking for more earnings disappointments in the weeks and months ahead. For example, PennyMac Financial Services (PFSI) significantly missed Q4 2025 earnings estimates in Q4. The leading mortgage company reported $1.97 EPS (below $3.12–$3.23 estimates) and revenue of $538 million (below the $637–$639 million forecast). Source: Google Finance PFSI missed Q4 2025 earnings estimates due to lower mortgage interest rates, which caused margin compression in its lending business and reduced income from its mortgage servicing rights (MSRs). While production volume grew, faster-than-expected prepayments of loans reduced the value of the MSR. Despite the miss and the huge initial 22% stock drop, however, PFSI shares closed up 1.85% (at $146.98) due to optimism over future margins. The fact that the Federal Open Market Committee is unlikely to cut interest rates in 2026 is another factor weighing on financial stocks. In a recent commentary published by WGA (“ The Martyrdom of Jerome Powell ”), we note that Fed Chairman Powell may remain on the Fed’s Board of Governors through the end of his term in January 2028. While Powell says that Fed officials should eschew elected politics, he seems to be preparing for a protracted standoff with the Trump Administration. 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. There is an enormous amount of forbearance by large banks with respect to defaulted loans to private equity firms and other non-bank financial institutions (NBFIs). Notice, for example, that the S&P 500 is up more than 13% over the past year but the stocks of business development corporations, which lend to smaller private companies, are down 6% over the same period. Source: KBW The risks to banks from NBFIs have nothing to do with interest rates and everything to do with inflation ℅ the FOMC. We expect bank stocks to retreat in 2026 because investors suspect that bad news is coming in terms of interest rates and credit. The performance of bank stocks and most other financial assets in 2025 were driven by a speculative wave following the election of President Donald Trump , a wave that has largely subsided. Gold, on the other hand, is a measure of the credit standing of the United States. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

January 26, 2026 | One of the unfortunate results of the incessant personal attacks on Federal Reserve Board Chairman Jerome Powell  by the Trump Administration is that the Fed’s significant policy missteps since 2018 have been all but forgotten. St Jerome is revered in the Catholic Church for translating the Old Testament directly from Hebrew, but Chairman Powell is unlikely to have a similar legacy in the annals of the Federal Reserve Board. As we told Bloomberg TV  last week, not only has the President's attacks not forced Powell out, but he has made this decidedly mediocre Fed chief a progressive martyr. As a result of Trump’s ill-considered attacks, Powell will likely remain as a Governor through 2028, depriving the President of an opportunity to appoint another governor for a 14-year term.  How does this mess serve the agenda of President Trump?   Perhaps the single biggest error of the Powell FOMC was failing to consider the impact of massive purchases of Treasury and mortgage bonds (aka "quantitative easing" or QE) on the nation’s housing market and also on the central bank itself. But as readers of The Institutional Risk Analyst  know very well, Powell actually started a massive easing program in January of 2019, a year before the onset of COVID and after the Fed's December 2018 fiasco managing liquidity in the money markets.  The chart below shows the duration of all Ginnie Mae MBS between 2018 and 2024. Notice that the FOMC panicked at the end of December 2018 when the US money markets almost collapsed and began selling agency MBS forward in the TBA market to force down interest rates -- this a year before COVID began . Such was the scope of the December 2018 disaster that former Fed Chairs Janet Yellen and Ben Bernanke were forced to come to Powell's rescue in the media in January 2019 . LGNMMD Index Source: Bloomberg We wrote about Powell’s mismanagement of the liquidity in the US money markets in December 2018 (“ Risks 2019: Quantitative Tightening, Eurobanks & China ”): “Just as quantitative easing expanded the US liquidity base, quantitative tightening or "QT" represents a structural decrease in liquidity.  As the Fed’s balance sheet contracts, there is a dollar-for-dollar decrease in liquidity because the Treasury is running a deficit. A bank deposit becomes a Treasury bill on the national balance sheet, illustrating why the Fed and Treasury are two faces of the same agency.  But the key point is that QT is beginning to impact markets and credit spreads.” Officially, the Federal Reserve began conducting its fourth quantitative easing operation since the 2008 financial crisis on March 15, 2020. In response to the collapse of the US Treasury market due to the onset of COVID, it announced approximately $700 billion in new quantitative easing via asset purchases to support US liquidity in response to the COVID pandemic. The Fed ultimately purchased over $4.6 trillion in net Treasury securities and agency mortgage-backed securities (MBS) through its quantitative easing program, which ran from early 2020 to early 2022.  This massive operation reflected the “go big” biases of both Powell and his predecessor, Janet Yellen, who years before had infamously tried (unsuccessfully) to manipulate long-term interest rates via “Operation Twist.”  Operation Twist was an excursion into the world of economic fantasy and was primarily conducted by the Federal Reserve in two major periods: initially from 1961 to 1965 to combat a recession, and again from September 2011 through December 2012 to stimulate the economy following the 2008 financial crisis. It involves selling short-term Treasury securities and buying long-term ones to lower long-term interest rates. Both instances were unsuccessful. The first iteration of Operation Twist was the brain child of James Tobin (1918-2002) of Yale University who served on the Council of Economic Advisers under President John Kennedy . And of course, Janet Yellen studied under Professor Tobin at Yale. More recently, then-Fed Vice Chairman Yellen was the intellectual author of Operation Twist II after 2008. During her time as a Federal Reserve official, Yellen was a leading proponent of using unconventional monetary policies such as QE and a newer version of Operation Twist to "support the economy" during the aftermath of the 2008 financial crisis.   In a very real sense, Chairman Powell continued the policies of Yellen and greatly expanded the Fed’s unconventional operations in the US money markets after 2020. These Fed policies had some initial utility, but were followed too much and for far too long. As a result, QE seen in total had limited or no economic value and profoundly negative political repercussions, this due to the surge of inflation caused by the vast expansion of the central bank’s balance sheet. The Affordability Problem The big result of Fed’s decision to go big with QE4 was forcing up home prices, an extraordinary development that has profound and continuing political consequences. U.S. home prices have surged significantly since early 2020, with national, seasonally adjusted, or median sales prices increasing by approximately 45% to 57% by late 2025. This rapid appreciation represents over a decade’s worth of growth in five years, driven by low supply and high demand caused by low interest rates. Source: FHA/MBA “Recent elections produced similar results in very dissimilar places,” writes Marilynne Robinson in the New York Review of Books  (“ At What Cost ”).  “Commentators came up immediately with a word to summarize what lay behind this apparent like-mindedness among the voters of Mississippi, Utah, and New York City. The word is ‘affordability.’ It was popularized in the first place by Zohran Mamdani in his successful campaign to be mayor of New York City.” The vast inflation caused by QE4 not only helped to carry Zohran Mamdani into the Mayor’s Office in New York, but it has shifted the political debate towards a focus on inflation that has not been seen in half a century. Whoever is chosen as the next Fed Chairman will need to reform the Federal Reserve Board and the staff when it comes to doing too much for too long in the name of neo-Keynesian stimulus.  “The newly released 2020 FOMC material suggests that the Fed did not carefully consider the risks it took on when committing to continued sizable asset purchases long after financial markets had normalized,” writes Bill Nelson in his latest comment for Bank Policy Institute . Nelson: “Unlike in the post-GFC period, explicit inflation contingencies were absent from both the rate and balance-sheet guidance, and staff analysis did not address the risks of falling behind the curve on inflation or the potential fiscal consequences.” Not only did the excessive bond purchases under Powell cause home prices in the US to skyrocket, but the mismanagement of the Fed’s balance sheet cost the US Treasury hundreds of billions in lost remittances from the central bank. Starting under Ben Bernanke, the Fed used QE to expropriate the assets of the Treasury without congressional authority and proceeded to lose hundreds of billions of dollars on their speculations!  The Fed under Powell also mismanaged the central bank’s assets and liabilities – essentially a tax in disguise, as our friend Alex Pollock  noted last year (“ Interview: Alex Pollock on the Fed and Gold | Part I ”). Again Nelson: “Although the Fed has now returned to profitability, it has lost a phenomenal amount of money, hundreds of billions of dollars, because of the massive interest rate risk it took during the Covid-era QE 4.  These are real losses borne by all of us and our children (unless you are reading this abroad).  Those losses, of course, need to be weighed against the benefits of QE 4… The decisions the Fed made that contributed to its losses, how it crafted its forward guidance and its preference for finishing its asset purchases before raising the funds rate, also increased the risk the Fed took of falling behind the curve on inflation.” There are many reasons why President Trump and the national Congress should be critical of the Fed under first Janet Yellen and then Jerome Powell.  President Trump's clumsy approach to managing the relationship with Powell, however, risks deflecting attention from Powell's poor record as Fed Chairman and instead turning him into a strange form of 21st Century political martyr. "Don’t martyr Jay Powell," writes Larry Kudlow . "He was a terrible Fed chairman, but he’s not a criminal. Over his tenure, he consistently missed the Fed’s inflation targets with the worst price hikes in 40 years. He was the most political Fed chairman in memory."   The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

January 23, 2026 | This week in “The Wrap,” we report in summary fashion about the latest events in Washington and Wall Street this week. The Trump Administration departed from Davos with a variety of “wins,” but there was nothing substantive about housing affordability or really anything else. Below is the latest podcast from Julia LaRoche with our friend James Rickards . Trump in Davos : Rickards does not think that the Trump Administration is "chaotic," but the President certainly likes to use surprise and hyperbole to advance key priorities. But why does everyone in Europe take Donald Trump so seriously? The President likes to get everyone riled up, then walks back his ask. Classic Trump. Has anyone in the EU read “ The Art of the Deal? ” Have world leaders forgotten how to play poker (or bridge)?  Trump is the only major world figure who understands that politics is a game. Maybe Vladmir Putin also. Greenland is a case in point. Trump despises EU leaders as much as Putin and loves to play on their emotions.  Federal Reserve : National Economic Director Kevin Hassett appears to be out of the running to replace Jay Powell as Fed chair. The DOJ’s investigation of Powell may have doomed Hassett’s candidacy. We spoke about the selection process for a new Fed chairman last week on Bloomberg TV : Kevin Warsh is now considered the favorite, but BlackRock’s Chief Investment Officer (CIO) Rick Rieder – apparently the candidate Trump most recently interviewed – is reportedly gaining momentum and may be the beneficiary of recency and outsider bias. We think former Governor Warsh is the better choice, but Trump seems determined to mishandle the process of selecting a new Fed chairman. Housing : Trump comments on housing in Davos were largely a non-event. The POTUS apparently wants home prices to go up, not down.  But his proposal to ban institutional investment in residential housing will reduce the supply of new homes, especially new rent-to-own properties. Trump: “Homeownership has always been a symbol of the health and vigor of American society, but that goal fell out of reach for millions and millions of people in the Biden era… Homes are built for PEOPLE, not for corporations — and America will NOT become a nation of renters… That’s why I have signed an executive order banning large institutional investors from buying single-family homes… And I’m calling on Congress to pass that ban into permanent law.” Congress is unlikely to take action on President Trump's proposal. The bias in America is up for prices because everyone loves inflation. Inflation is good for gold and old people, bad for young aspiring homeowners and politics in general. Rising prices for housing and everything else are radicalizing American politics. MTS Observer : "When housing is viewed as an investment by a cohort of politically vociferous Americans, a policy of monetary debasement and asset inflation...will follow in order to appease that cohort." Thankfully President Trump distanced himself from the idea of pulling cash out of 401(k) plans to purchase a home. Enabling more buyers for a limited number of homes means higher prices. So far, none of the trial balloons floated by the Trump- Bill Pulte - Howard Lutnick housing troika have panned out. As we have noted before, demand side policies are really all that Washington knows and will only push up home prices until supply catches up. Gold Breaks $5,000 Speaking of rising prices, gold and silver have experienced an explosive, record-breaking week as of January 23, 2026, with gold exceeding $5,000 an ounce on Friday and silver breaching the $100 per ounce mark for the first time. Both metals are experiencing their best weekly performance since 2020, driven by geopolitical tensions, a weak dollar, and safe-haven buying.  We spent two days with author and economic analyst Jim Rickards at The Lotos Club in New York this week for a series of private meetings. He noted that gold remains a largely asymmetrical trade and that central bank buying, supply limitations and other factors are likely to keep gold moving higher. The key caveat Jim notes, however, is that when any commodity moves as high and as fast as gold and silver, there will be a correction.  FDIC Grants Industrial Loan Charters The big news in finance this week came from the FDIC approving industrial loan company (ILC) applications for Ford (F)  and General Motors (GM) .  Until 2024, the FDIC did not really process industrial bank applications and had not approved a larger proposal in over 20 years.  Now the moratorium is ended and we expect to see more applications for industrial banks. Nissan (NSANY) and Stellantis (STLA) both have applications pending. Notice that both of these new entities are being set up to take deposits, a model that an independent mortgage bank (IMB) or nonbank lender could follow. The banks set up by F and GM will buy financing assets from dealers. IMBs could buy loans and MSRs from a nonbank affiliate. Owning an ILC gives you access to the Fed payments system, a master account, the standing repo facility, and the discount window. ILCs may also become Fed members and members of the Federal Home Loan Banks.  Currently, only seven states—Utah, California, Nevada, Hawaii, Minnesota, Indiana, and Colorado—have statutes allowing the chartering of Industrial Loan Companies (also known as industrial banks). Among these, Utah is the most active, hosting the majority of ILC charters due to its permissive regulatory environment. But Indiana, for example, was one of the first states to offer the industrial bank charter.  Morris Plan Banks (established 1910) are the direct ancestors of modern ILCs, acting as the original model for providing consumer credit to industrial workers ignored by traditional banks. Founded by Arthur J. Morris   in Norfolk, VA, they pioneered installment loans based on character and co-makers. Today ILCs offer industrial companies with a powerful way to access banking functions without becoming a bank holding company.  WGA has advised on a number of ILC proposals by nonbanks over the years. Please reach out if you'd like to discuss. The End of Tri-Merge? Finally, our latest column in National Mortgage News is below. This week we looked at the proposal by the Mortgage Bankers Association to end the requirement for Fannie Mae and Freddie Mac to pull three separate credit reports from the major data repositories for prime conventional loans.   In a December 2025 letter to Federal Housing Finance Agency Director Bill Pulte , the Mortgage Bankers Association noted that "the current GSE requirement to obtain a report from each of the three credit reporting agencies creates a situation where there is no competition between bureaus for the product."   The MBA wants to eliminate the requirement for borrowers above a 700 FICO. This is one of the few proposals in Washington that may actually reduce the cost of a mortgage loan, but there may be negative consequences for this practice if it spreads to loans below a 700 FICO.  The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

January 21, 2026 | In this issue of The Institutional Risk Analyst , we provide an update on Residential Mortgage Finance for our Premium Service  subscribers. There are a lot of things happening in the mortgage world and not all of them good, but the one big positive is that 1-4 family mortgage rates have fallen by a point over the past year. As the FOMC has cut ST interest rates, lenders have lowered coupons, but LT bond yields remain a big question. The Trump Administration is expected to announce measures to address “affordability” in housing at Davos, but most proposals will be demand-side expedients that do nothing to reduce home prices.  The purchase of MBS by Fannie Mae and Freddie Mac are, in theory, supposed to offset the runoff of securities from the Fed's system open market account (SOMA). The more interesting observation to make about the Fed's $2 trillion in MBS holdings is that they are still not really declining very fast despite the drop in mortgage rates more generally Source: Ginnie Mae/FRBNY The White House will reportedly take a step toward allowing savers to withdraw from their 401(k)s to make a down payment on a home. Mortgage rates have fallen all year as lenders optimistically lower coupons, but the periodic Treasury refunding operations push LT interest rates back up, hurting secondary market execution. The lender who opportunistically lowers coupons may lose when selling the loan. The 10-year Treasury note is backing up following a $700 billion Treasury refunding and Japan’s bond market is likewise in retreat. But the more important fact is that the spread between 2 year Treasury notes and the 10 year Treasury is widening because of the policy noise coming from the White House. The spread between Treasury 2s and 10s rightly is considered the most important relationship in bonds. Eric Hagen at BTIG frames the situation nicely in their latest Mortgage Finance update: “30-Yr mortgage rates to GSE borrowers are averaging around 6% following the 20 bps of spread tightening in the secondary market since Trump's MBS announcement. Spreads in the Ginnie Mae channel have also started tightening in anticipation of an announcement for a cut to FHA insurance premiums this week at Davos, alongside other potential housing directives to support first-time homebuyers. Prime jumbo rates have expectedly lagged the drop in conventional rates, even though jumbo spreads in the private-label securitization market appear mostly stable…” Our view on FHA insurance premiums is simple: with 12% visible delinquency, the statutory 2% MIP target is probably not enough, but 11% is too much. Garrett, McAuley asked the right question in their comment this week: “FHA’s MMI Fund had a capital ratio of 11.47% as of last September 30th, or $188.8 billion. Is this enough to cover losses from the $1.65 trillion in FHA mortgages outstanding? Despite an elevated delinquency ratio on FHA loans, it’s probably way more than is needed.” You can reduce the MIP now in front of the midterm elections, but in a real home price correction a couple of years from now it needs to be close to the net default rate. FHA serious delinquency rates are a good surrogate and are significantly higher than conventional loans, hovering around 3.5%–4% serious delinquency at year-end. These are loans that are likely to go to resolution. FHA Defaults Rise

January 19, 2026 | Updated | This is the 800th post since March 2017, when we resumed publication of The Institutional Risk Analyst . The IRA was created in 2003 by Dennis Santiago  and Christopher Whalen  at Lord Whalen LLC (dba “Institutional Risk Analytics”). The original blog engine for The IRA was a custom application in MSFT SQL built by Dennis and hosted on a cluster of terrestrial servers in back of the offices in Hawthorne, CA, next to the wet bench. Today we ponder the latest results from two banking giants, Goldman Sachs (GS)  and Citigroup (C),  both of which outperformed the rest of the industry in stock price appreciation during 2025. Citi was the best performer among the top-five money center depositories. GS was the leader among larger banks generally, but Lending Club (LC) passed them both in the second half of 2025. Both of these banks are in the midst of sweeping reorganizations, something that seems to define normal for Goldman and Citi. We continue to believe that merging these two global universal banks would make a lot of sense. Let the Citi bankers run the commercial bank and the Goldman investment bankers run the broker-dealer. Add together the deposits, consumer finance book and investment assets, and you have a dominant financial institution and a real competitor to JPMorgan (JPM) . GS has the better market value so their shareholders would get the biggest slice of the post-close equity pie. In Q4 Goldman Sachs beat Street profit expectations, driven by a surge in investment banking and trading revenue, despite a modest revenue hit from the Apple Card portfolio transition. In fact, there was actually a $2 billion benefit from the deal from release of reserves, this in addition to the considerable operational benefit of ending the AAPL relationship. GS blew past earnings estimates by more than 20%, illustrating that good things happen when the firm focuses on its core strength, namely doing deals and asset gathering. GS has the least impressive corporate disclosure of any large bank, especially compared to Citi which actually provides copies of its supplement in MS Excel. The amount of information provided by GS is adequate in a legal sense, but nothing like the heaps of data that comes from Citi or the other top-five money center banks.  The table below shows total assets and LTM stock performance for the top five money center depositories plus GS. Source: FFIEC, Google Finance Of note, U.S. Bancorp (USB)  is the smallest money center bank, not the largest regional, contrary to what you may read in the media. This is due to its huge payments platform and equally large custodial business. USB just announced the acquisition of BTIG, one of the top investment banking and research shops covering financials. Prior to BTIG, USB acquired MUFG Union Bank's core banking franchise in late 2022, including over a million customers and three hundred retail branches in California, Washington and Oregon. The Union Bank transaction made USB the second largest national player in residential mortgages after JPM and they are an important custodian in the secondary mortgage market.  Citigroup's top headline was a strong beat on profit expectations, driven by a rebound in investment banking and robust performance in its services and wealth management divisions. But non-interest revenue was almost cut in half in Q4, as shown in the table below from the Citi presentation. Higher expenses and a $1.2 billion hit from selling its Russian operations to Renaissance Group combined with ongoing challenges in areas like credit cards where delinquency is rising. A big drop in principal transactions did not help nor did the large impairment charge or the $1 billion charge for a change in recognition for foreign currency exposures. Net revenue was off 10% sequentially in Q4 2025. Citi is in a very complex business. Regarding exposures to Nonbank Financial Institutions (NBFIs), Citi CFO Mark Mason  opined on the risk. Most banks talk about NBFI exposures being “investment grade,” but we are skeptical of such claims for the reasons we outlined last week (" Does Private Credit Hurt Bank Stocks? ") : “Overall, I would say the NBFI exposure is predominantly investment grade. So that’s a consistent theme for us as firm, certainly is the case as it relates to how it’s reflected in this disclosure. That means we’re working with top-tier asset managers that are sponsors of private credit or established consumer platforms. We’re maintaining collateral pools that are well diversified with concentration limits. We’re ensuring that there are structural protections, including ample subordination that helps to result in the high investment-grade attachment point. And we’re monitoring all the underlying collateral, and we have transparency at the loan-by-loan level. And so, when I kind of take a step back and look at that, we’re very selective from a risk perspective as to how we play across all of these subcategories, but particularly as it relates to private credit. And I think the key takeaway is that, that category is very broad.” 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 adventure in retail banking and credit cards.  The table below 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. Compare the GS disclosure to Citi and the conclusion is obvious. Unfortunately, the leadership team at GS still does not seem to have any solid ideas about the future except falling back on the traditional business lines such as investment banking and capital markets, with a secondary emphasis on asset management. Perhaps more concerning is the focus on “AI” as the leading value driver for the future. When corporate managers start waffling about “AI” you know that they have nothing else to say.  The folks at GS led by David Solomon are really smart people, but "AI" is their battle cry for the future of Goldman Sachs 3.0? Really? Based on our work with a number of large consumer lenders and vendors, we see AI as mostly a throw-away tool to enhance some consumer interactions, but within very strict limits. The false and spurious results from AI are simply too significant to support more comprehensive uses in customer facing applications. Internal use cases for AI offer far better risk-adjusted returns for expense control, but little in the way of obvious revenue opportunities. " Everyone knows that AI still makes mistakes," writes Edd Gent in IEEE Spectrum . "But a more pernicious problem may be flaws in how it reaches conclusions. As generative AI is increasingly used as an assistant rather than just a tool, two new studies suggest that how models reason could have serious implications in critical areas like health care, law, and education." Naturally Mike Mayo of Wells Fargo asked about AI during the GS earnings call: “This is a new era for Goldman Sachs, Goldman Sachs 3.0, and you’re redesigning the whole firm around AI, so that could be very exciting, but I’m looking for the output that you’re looking for from this. I know it’s early days, but whenever I ask about AI, it’s always answers at the 10,000-foot level. It’s transformational. It’s a game changer. It’s a superpower. We all get that, but what are you hoping to achieve? So this decade, your revenues are up two-thirds. Your headcount’s up one-fourth, so that’s one way maybe you could frame the output that you’d like to achieve, but how much more in revenues? How much more in efficiency? Just can you put some meat on the bones? Thank you.”  GS CEO David Solomon responded and illustrated how little actual substance there is in future claims about the value creation potential of AI: “I appreciate the question, Mike, and I appreciate the way you frame it, and I understand why there’s a strong desire to get more from us. What I promise you is you’re going to get more over time as we’re in a position to give you metrics, to give you targets, and to really explain it. I want to step back at a high level. Just the one thing that I’d say, and I’d frame it slightly differently than you’d frame it. This is not a new era for Goldman Sachs, One GS 3.0. We’re not going to transform the whole firm with AI. We are focused on our two core businesses, driving growth in our two core businesses. And both, I think, we’re incredibly well-positioned and positioned to win. AI in this technology is an opportunity for us to drive productivity and efficiency in the organization, and we are very, very focused on it because it will add to our capacity to invest in growth in the business.” As you can see, the conversation around AI at GS is mostly around expense control, a common theme shared by GS and Citi. When it comes to AI driving revenue growth, the corporate happy talk at GS fails. At Citi, by contrast, the conversation remains focused on reducing expenses and corporate divestitures. This includes an agreement to sell the consumer business in Poland, selling Citi’s remaining operations in Russia, and the sale of a 25% stake of Banamex to one of Mexico’s most prominent investors.  The graphic below shows the expenses of Citi in detail. CEO Jane Fraser mentioned AI six times in her Q4 comments, but provided explicit guidance about operating leverage: "We expect our disciplined expense management, combined with top-line revenue momentum, will drive another year of positive operating leverage as we target an efficiency ratio of around 60% for the full year." Getting efficiency to 60% implies significant headcount reductions in 2026. At a little over 1.1x book value and $210 billion in market cap, Citi arguably has more room for improvement than does Goldman at 2.5x book and $280 billion in market cap. Goldman has set the bar high with their performance in 2025 and the bank will have a tough time exceeding those levels of growth and earnings. Citi, on the other hand, has thrown down the gauntlet on operating leverage and has something to prove. Fraser has already announced headcount reductions in January and will need to do more to hit the 60% efficiency target. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

January 16, 2026 | Updated | This week in a special Premium Service  edition of “The Wrap,” we report to our paying subscribers about the latest events in Washington as the Trump Administration lurches into full midterm mania. We also comment on earnings for financials, including the growing Street angst about private equity and credit exposures at some of the largest banks (“ Does Private Credit Hurt Bank Stocks? ”).  Last week, of course, President Donald Trump tacked sharply to domestic affairs and announced $200 billion in bond purchases by Fannie Mae and Freddie Mac. He also announced a 10% cap on credit card interest rates, a politically popular idea that is unlikely to happen. The Trump WH is also letting it be known that a number of other new initiatives are under consideration for housing and that favorite keyword, affordability. But the biggest news in housing will make a lot of people in Washington and on Wall Street very unhappy.

January 15, 2026 | Updated | Looking at bank earnings so far this week, the big area of interest is the continued growth in loans to nonbank financial institutions (NBFIs) and private equity fund sponsors. Such is the investor concern about bank lending to NBFIs that JPMorgan (JPM) included a whole page in its investor presentation breaking out nonbank exposures. Are concerns about the credit quality of NBFIs starting to weigh negatively upon bank stocks?  We think the answer is yes, especially after a 2025 of supranormal returns in bank stocks. Below is the now famous chart showing the total loans to NBFIs by US banks. Whenever you see an asset class that is more than 5% of total assets with double digit growth rates, it's usually bad. But what most investors don't appreciate is that the rising level of delinquency in private equity and credit is actually driving growth in bank lending for this $1.2 trillion loan category. Source: FDIC JPM’s exposure to NBFIs is growing rapidly, as shown in the chart below. The reported net-charge off (NCO) rate is still very low, but given some of the outrageous practices in the private sector used to conceal events of default, we wonder about the quality of this disclosure. As we’ve noted in past  comments in The Institutional Risk Analyst , there are a growing number of NBFIs that are hiding defaults under various canards.  And as discussed below, the banks rarely ask any questions. Another major NBFI lender, Wells Fargo (WFC) , this week saw its stock slide the most in six months after missing revenue estimates. But are managers really worried above WFC revenue given the banks impressive asset growth? Nope. Wells Fargo's lending to NBFIs is up 30% YOY or 10x the rate of increase in the rest of its loan portfolio. Does this suggest anything? WFC's loans to NBFIs totaled $208 billion in Q4 with another $120 billion in unused commitments ready to go. Nonaccrual loans at WFC to NBFIs have increased ten-fold since last year.  While discussing the strong loan growth at WFC, CEO Charlie Scharf described the fastest growing parts of the bank’s portfolio: “The biggest piece of this category, as well as the driver of most of the growth, is from our fund finance group, which is largely subscription or capital call facilities for alternative asset managers, targeting larger funds with strong investment track records, where we have long-standing strategic relationships and that are generally backed by a diversified pool of limited partner commitments to the fund. Within commercial finance, the biggest piece is our corporate debt finance business, which is secured lending to asset managers and private equity funds that is typically backed by middle market and broadly syndicated loans. We underwrite, approve, and monitor the performance of each underlying loan.” Do WFC or JPM re-underwrite and monitor each private loan that serves as collateral on the bank’s loans, much less the private companies in a PE firm’s portfolio? Nope. They depend upon the conflicted representations of the PE manager who earn big fees for continuing the pretense. This is why public markets are superior to private schemes, this regardless of the arguments made by officials of large private credit sponsors. Since there is no visible public market for private equity and credit exposures, the lender banks must accept the static, unaudited valuations of the PE manager. Even if a lender haircuts a PE portfolio company 50%, he may still be underwater on the loans. Could the festering losses concealed inside the commercial loan portfolios of the largest banks be pushing down bank equity valuations? While there is no visibility into private equity and credit funds, publicly traded business-development corps (BDCs) provide a window into this world that is subject to GAAP. The canaries in the proverbial coal mine are the BDCs, which have been suffering from falling equity valuations for months. The VanEck BDC ETF is shown below. BIZD holds approximately 35 stocks, providing exposure to BDCs that invest in private companies, with holdings rebalanced quarterly “In Q4, non-traded BDCs with NAVs over $1B saw redemptions jump ~200% QoQ, rising from $981M to $2.9B+, according to Robert A. Stanger & Co. Ares Strategic Income Fund exceeded the standard 5% quarterly tender cap to meet investor demand,” notes Leyla Kunimoto  in a LinkedIn post . She notes that despite the rise in redemptions from credit funds, fundraising remains strong: “BDCs are still on track to raise over $60 billion in 2025, according to Stanger.” Will Poop Kill Private Equity?   One of the pernicious aspects of private equity and credit is that the portfolio companies inside PE funds generally do not follow GAAP. As a result, when a private equity portfolio company starts to use payment-in-kind (PIK) instead of paying banks and debt investors in cash, the value of the portfolio company may accrete higher . We suspect that one reason for the low stated default rates on bank loans to NBFIs, and also the high growth rates in bank loans outstanding, is that widespread forbearance is being tolerated by managers, investors and lenders.  If the loan price does not drop to reflect credit distress (cashflow suspension), the assigned fair value of the loan will also INCREASE (price times principal). If this loan collateralizes a non-recourse financing transaction, the transaction LTV will accordingly DECREASE, making the odd appearance of DECREASING default loss risk for the bank which provides this financing. “Private Credit loan borrowers within these BDCs now often elect Payment In Kind (PIK), to suspend promised interest and principal amortization cashflows, without triggering contractual default, and thereby accrete new Principal Onto Original Principal ("POOP"),” notes our pal Nom de Plumber . Many PE funds actually treat PIK as an increase in equity value, he confides, and then borrow cash from a bank based upon these fictitious valuations to pay private equity investors. "The BDCs will report that non-cash interest income, and must pay most to shareholders as dividends," NDP continues. "But with what cash?? If the BDC fails to make the minimum required payment to investors,” NDP asks, “they might lose IRS treatment as pass-through vehicles, and thereby begin to pay corporate income taxes, also. But with what cash??” Several observers note that some BDCs currently may lack the cash to meet ANY redemption requests, thus public shareholders in the institutional community are voting with their feet. Yet the flow of new cash into private equity and credit funds suggests that the sponsors may manage the outflow of cash from older investors with new cash from greater fools. And we strongly suspect that some of the larger banks are advancing cash on moribund portfolio companies to delay events of default. The Systemic Risk of NBFIs The risk to banks posed by lending to NBFI’s is not a matter of conjecture. In a report issued this month by the Federal Reserve Bank of New York (“ Transformed Intermediation: Credit Risk to NBFIs, Liquidity Risk to Banks ”), the authors note that the rise of nonbank financial companies and funds has increased the exposure to banks. Since the banks use depositor funds to lend to NBFIs, the systemic risk is actually increased overall.  For example, it is not the case that NBFI’s compete with banks in parallel  using non-deposit funding such as term debt, but instead transform  the deposits of large banks into risky nonbank assets. The authors ( Viral V. Acharya , Nicola Cetorelli , and Bruce Tuckman ) write: “[T]he rapid asset growth of nonbank financial intermediaries (NBFIs) relative to banks is the outcome of transformations of risks between banks and NBFIs that increase the interconnectedness of the two sectors. These transformations are consistent with avoiding tighter, post-GFC bank regulation while harnessing the funding and liquidity advantages of bank deposit franchises and access to safety nets.”  The authors explicitly reject the view of NBFIs operating in parallel with banks and thereby reduce risks to the banking system, and instead describe a world where NBFIs complement banks and increase systemic risk:  “NBFI and bank businesses and risks transform, in a complementary manner, to avoid the consequences of stricter bank regulation while utilizing the funding and liquidity advantages of the banking system. The implication of our transformation view is that NBFI and bank businesses and risks become increasingly intertwined, but in a very particular way: banks make senior loans to NBFIs; NBFIs take on junior credit exposures to nonbank borrowers; and banks provide NBFIs with credit lines.”  The FRBNY paper paints a grim picture of risk in the financial system today, whereby NBFIs have defeated regulatory limits and imported increased credit risk into the regulated financial institutions. The paper recalls that in the 1990s, when banks were perceived to be declining, off-balance sheet finance in fact increased the leverage in the system. In the 2000s, several researchers noted that “banks were not circumvented by the growth of securitization, but rather enabled securitization through liquidity and credit guarantees.” The song remains the same. The FRBNY paper provides a sobering assessment of the possible consequences of NBFIs increasing risk to regulated banks.  If our surmise about the degree of forbearance in the US financial system is even remotely correct, then the weakness of US bank stocks may be caused by the same flight to safety that has caused BDC stocks to underperform over the past year.  They write: “With respect to systemic risk, the liability-dependence of NBFIs on banks directly implies that losses at NBFIs can directly result in losses at banks. Indirectly, these dependencies imply that fire-sale liquidations by banks of assets of NBFIs can transmit shocks to other banks. Furthermore, more subtly, Cetorelli, Landoni, and Lu (2023) show theoretically and empirically that forced liquidations of any asset in some group of portfolios can result in fire sales of other assets in those portfolios. This would imply that shocks to NBFIs can impact banks even without exposure to that particular set of NBFIs.” The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.