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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.

“ You got to win the midterms, because, if we don't win the midterms, it's just going to be -- I mean, they will find a reason to impeach me. I will get impeached. ” President Donald Trump January 13, 2026  | Updated | Last week saw a number of remarkable developments from Washington that we discussed in our weekly edition of The Wrap (“ The Wrap: Hezbollah in Caracas? AI Flameout? Trump Buys MBS? Really? ”), including President Trump’s order that Fannie Mae and Freddie Mac start repurchasing their mortgage backed securities to lower LT interest rates.  Our latest conversation with Julia LaRoche is below: Later on that Saturday after the release of the latest edition of "The Wrap," we spent Twelfth Night at the Lotos Club. This helped to dispel the confusion caused by the latest Trumpian edict regarding an immediate cap on credit card rates at 10% starting January 20th . This announcement caused a minor furor online, but all for naught. In fact, a U.S. President does not have the unilateral authority to cap credit card interest rates. Implementing such a cap nationwide requires an act of Congress and then only for national banks. State usury laws also impact the cost of credit.   The weakness in the stocks of credit card issuers may be another buying opportunity ℅ the POTUS. Like last year with tariffs, markets and related media need to appreciate that the level of political noise from Washington is bound to increase to a loud and mournful yowl as the midterm elections approach. Trump's latest attack on Fed Chairman Jerome Powell is another case in point and just illustrates the growing political desperation within the Trump Administration. A lightly edited, machine and human-generated transcript of a portion of Trump’s comments last week to Republican lawmakers is available on the PBS NewsHour website . This week let’s pick up where we left off by discussing the news that JPMorgan Chase (JPM)  has agreed to take over the $20 billion in loans underpinning the Apple (AAPL)  credit card portfolio from rival Goldman Sachs (GS) , extricating it from one of the last businesses related to the ill-fated excursion into retail banking. We’ll watch eagerly to see how much the above-peer loss rate at GS falls.  CEO David Solomon said in response to a question in Q3: "We’ve been clear that credit cards are not a go forward focus for Goldman Sachs. I don’t have anything more to say on the Apple Card program at the moment. You saw us completely, and we now are completely exited from the GM card platform. When there’s something more for me to report on the Apple Card, I guarantee that this broad group that’s on the call will be among the first to know it." In this edition of The Institutional Risk Analyst , we look at the largest universal banks including Goldman, Morgan Stanley (MS) , Raymond James Financial (RJF), Charles Schwab (SCHW) , Ameriprise Financial (AMP) , and Stifel Financial (SF) . We also talk about Jefferies Financial Group (JEF) , which is part of our nonbank finance group and is a significant benchmark for investment banking revenue.   While preparing this note we discovered that Raymond James had somehow disappeared from the Fed's National Information Center website for Q3 2025. At press time, RJF was not included in the list of large banks in Peer Group 1 and there was no form Y-9C or bank holding company performance report. The bank confirmed to The IRA that a Y-9C was filed on September 30, 2025. We opened a ticket with the Board of Governors helpdesk and will update this report when the omission is corrected. ( Editor's n ote: RJF was restored to NIC late on the evening of January 12th ). Source: Google Finance (1/12/2025) Universal Bank Q4 Earnings Setup

This week in “The Wrap,” we ponder the events of the past week and give our readers some thoughts about the future. The Trump Administration celebrated January 6, 2021 by invading Venezuela in 2026, an adept move from a media perspective, but is all of this just for show? We also ask whether 2026 is the year when the tech trade fueled by AI hype fizzles out. And don’t miss our weekly podcast with Julia La Roche , which is released on most every Saturday. Iranian Weapons in Venezuela With the US military intervention in Venezuela, President Donald Trump now claims to control that nation’s oil sector, but much of the narco government of Nicolás Maduro remains in place. More, the growing crowd of bad actors from Iran, Cuba, China and Russia is still on the ground in Venezuela, actively planning the demise of the United States.   The Heritage Foundation reported in 2023 about Iran's extensive activities in Latin America . Strangely, the Trump Administration has said almost nothing about the presence of offensive military weapons in Venezuela, weapons controlled by Iran that can target the US. The US has a blockade of Venezuela, but why has President Trump made so little policial hay out of the presence of Iranian Revolutionary Guards in Caracas? What would Jack Kennedy or Ronald Reagan have said?  Revolutionary Guards The Credit Strategist  wrote earlier this week: “Iran has been manufacturing weapons in VZ for years. Iran’s Revolutionary Guards maintain an operational infrastructure in the country with Hezbollah operating alongside. Since 2020, Iran has transferred weapons capable of reaching any target in the state of Florida (weapons that were publicly displayed in VZ military parades in 2021 through 2023 - talk about painting a target on your back!). An Israeli defense research organization, the Alma Research and Education Center, catalogued the specific systems and notes they can target both American soil and ships in the Caribbean.” Meanwhile, a number of observers have noted that Venezuela holds as much as 600,000 bitcoin tokens, an offshore pile potentially worth tens of billions of glorious fiat dollars, though experts question the feasibility of such a large stash given local corruption and infrastructure issues.  The whole point of "socialism," after all, is theft, right? Why does Venezuela need such a large pile of crypto? To evade US sanctions and support global allies like Iran, of course. Never forget that the primary use case for bitcoin outside the US is to support criminal and terrorist organizations and evade US sanctions. But if the crypto stash ever existed, you can be pretty sure that Maduro and his Cuban protectors have already stolen much of it over the past several decades since Hugo Chavez seized power in 1999. Just check the blockchain... In the Washington Post years ago , we noted that the phrase "the perfect dictatorship" was coined by Peruvian novelist and Nobel laureate Mario Vargas Llosa to describe Mexico's long-ruling party, the Institutional Revolutionary Party (PRI). His comment, made in 1990 during a televised roundtable discussion with intellectuals, stunned the Mexican political class and their American sponsors. All of the major "leftist" political parties in Latin America used the PRI as a model and made looting their respective patrimonies into an artform, but none more than Venezuela. Oracle Gone a Bridge Too Far?   Most analysts are optimistic about the US equity markets, as one might expect, with some talking heads even predicting stock price multiple expansion due to short-term interest rate cuts by the FOMC. But some are starting to question still inflated valuations in technology and financials. Top of the list of negative outlooks is Oracle Corporation (ORCL) , which depending on who you ask is either profoundly insolvent due to its massive bet on the marketing con known as AI or the greatest trade since Nvidia (NVDA) in 2020. We wuz there (h/t Jim Cramer ). Likewise, analysts are starting to fashion constructive rationales for higher bank valuations based upon lower interest rates. “As of November 30, 2025,” notes MTS Observer , “Oracle announced almost $250 billion in planned new lease commitments, substantially all of which are related to data centers and ‘cloud capacity’ arrangements. In simple terms, what this means is that Oracle has contractually committed to incurring and paying $250 billion in rent expense over the next 20 years in support of its push into the artificial intelligence space.” What this means is that ORCL is on the hook for many more hundreds of billions of dollars in lease expenses and related costs for its imprudent dive into “artificial intelligence” or “AI.” Like earlier AI cons going back to IBM Watson, AI is the acronym for one of the greatest value destroyers in history. Could ORCL possibly generate enough revenue and earnings to justify such an investment? Or is CEO Larry Ellison  chasing the same shiny object as everyone else in techland? Call it reflexivity or smallmouth bass in June, same difference. Recent massive capital expenditures for AI infrastructure have indeed impacted near-term free cash flow at ORCL, yet supporters of the stock say that its cloud growth is strong, with a huge backlog of contracted future revenue, signaling long-term profitability, even as it invests heavily in data centers. But are large language models (LLMs) really going to produce LT profitability for ORCL and other tech giants betting the farm on AI?  We are a large seller of that notion. In a fascinating interview with the FT over the weekend , former Facebook (FB) AI guru and admitted wine connoisseur Jan LeCun  argues that LLMs are useful but fundamentally limited and constrained by language. An electronic parrot, like we said. To achieve human-level intelligence, you have to understand how our physical world works too, LeCun argues, and thus LLMs are ultimately a dead end. “Intelligence is really the thing that we should have more of,” he argues. “We suffer from stupidity.” Regardless of how you feel about the investment prospects of AI, what we can say is that the AI-induced hype surrounding stocks like ORCL and Nvidia  is starting to wear thin with many investors. But perhaps more concerning is the fact that there are growing numbers of examples of where AI is enabling fraud and costing investors money – a lot of money. AI & Mortgage Fraud President Donald Trump said on social media Thursday that he is directing the federal government to buy $200 billion in mortgage bonds, a move he said would help reduce mortgage rates at a time when Americans are worried about home prices. In fact, the housing GSEs or even the Treasury must hedge their portfolios, thus the net impact on mortgage rates of MBS purchases will be zero while increasing taxpayer risk. We discussed this last year in National Mortgage News (" Reviving GSE MBS purchases would repeat the Fed's mistake .") Also, neither of the GSEs has the cash liquidity to fund the purchases (h/t Dennis H.). We remember when former FHFA Director Sandra Thompson retired the term debt of the GSEs. We asked her: Don't you think they'll need the funding? She said "Nope, don't need it." Somewhere Thompson is laughing. Only the Fed under Janet Yellen was dumb enough to buy $3 trillion in MBS, costing the taxpayer hundreds of billions in losses and without really affecting mortgage rates at all. Yellen's "operation twist" was another fiasco, where the Fed bought longer-term Treasury bonds and simultaneously sold shorter-term ones to lower long-term interest rates and stimulate borrowing. LT interest rates did not fall and the Fed lost tens of billions because of the duration mismatch. A mere $200 billion from Donald Trump is a rounding error, pure populist political pulp that will not impact home affordability at all. In fact, if the folks in the White House asked Treasury Secretary Scott Bessent , he'd tell them that mortgage spreads are  already pretty tight. But all that the White House cares about is the November midterms, thus look for the level of silliness to increase. Getting Fannie Mae and Freddie Mac to repurchase their own debt is a truly idiotic idea that has been circulating around Washington for some time, but President Trump is getting more progressive by the day. In fact, the childish suggestions coming from the Trump White House on housing may continue to push LT interest rates higher . Yet the carnage caused by AI in the world of mortgage lending may be worse than any yowling in Washington. Consider the rising incidence of fraud in US mortgage lending. AI is being used by dishonest borrowers, and sometimes even crooked loan officers and whole lenders as well, to alter documents and create completely fictitious borrower identities. These techniques help criminals to bypass traditional security measures and automated bank verification systems for income and employment. In essence, the entire traditional process for income verification has been rendered obsolete, putting lenders, the GSEs and investors at risk. Even documents like the IRS Form 4506-C are being falsified by unscrupulous lenders using AI. When Plaid was founded a decade ago, we initially thought the idea of giving vendors access to your bank data was outrageous. But today, in the world of AI and loan fraud, it may be essential. WGA just invested in a private firm that supports non-QM lending with income and asset analysis using direct source data (Plaid, Finicity, MX), not PDFs. In fact, the poor old PDF is muerto as a source document in lending. Consider a short list of some of the threats facing US banks and lenders. Synthetic Identities : Criminals use AI to generate convincing, yet fake, personal identities by combining real and fabricated information (e.g., mixing a real Social Security number with a fake name and address). These "synthetic identities" are then used to open fraudulent accounts or apply for loans with no intention of repayment, making them difficult to track as there is no real victim to report the fraud. Forgery of Documents : Advanced AI tools can produce authentic-looking fake documents such as pay stubs, bank statements, tax returns, and identification documents (passports, driver's licenses). These forged documents are used to inflate income information, hide existing financial obligations, or verify the fake identities during the loan application process, bypassing verification systems. Deepfakes : Fraudsters use AI to create highly realistic audio and video impersonations ("deepfakes") of legitimate individuals, such as loan officers, real estate agents, or even the borrowers themselves. This technology can trick bank employees or automated systems relying on voice or video verification into making unauthorized changes to loan terms or misdirecting funds. Social Engineering : Generative AI allows scammers to create large volumes of highly personalized and grammatically perfect phishing emails, texts, or social media messages that mimic the tone of legitimate companies or individuals. These messages are designed to trick victims into revealing sensitive personal and financial information needed for loan applications or account takeovers. Robot Attacks : AI bots can automate large-scale credential stuffing attacks, rapidly testing stolen login information across multiple websites to gain unauthorized access to accounts that can then be used for fraudulent loan applications. During 2026, we think that the cost of fraud in the consumer lending process is going to become an urgent priority for lenders and also regulators and government-sponsored entities that insure loans like Fannie Mae and Freddie Mac. The prospect of loan repurchase demands by the GSEs or private investors as loan default and also loan defect rates rise is a significant risk factor for banks and nonbanks alike in 2026. Annaly Capital Management (NLY) While we are focused on potential risks from lenders, we remain very sanguine about one of our core portfolio holdings, Annaly Capital Management (NLY), even as spreads tighten. NLY invests primarily in mortgage backed securities (MBS) and also mortgage servicing assets, an area where WGA LLC is actively involved.  Among the REITs, NLY was early recognizing the value of negative duration mortgage servicing assets which also have cash flows and valuable optionality. Imagine that. “We remain constructive on the opportunity in Agency mortgage REITs, mainly given the support for dividends if interest rate volatility remains this low, and particularly if expectations stay focused on the Fed cutting interest rates further this year,” notes Eric Hagen at BTIG. He continues: “But on a relative basis, with MBS spreads versus Treasuries near multi-year tights around 115 bps, we're preparing for a little more upside in NLY if spreads grind tighter, and we expect it could show a more stable stock valuation if spreads widen back out if interest rate volatility is resurfacing. We think the higher risk scenario for NLY would involve a plummet in long-term interest rates, which could expose the prepayment sensitivity in its MSR and non-QM portfolios. It's not currently our expectation for MBS spreads to revisit the absolute tights near 75 bps, like we saw at the end of 2021, although our outlook embeds some belief that the Trump Administration will try to orchestrate lower mortgage rates, especially if it dovetails with broader policy objectives surrounding a relisting of the GSEs.” Finally, we must close with the happy news that JPMorgan Chase (JPM) has agreed to take over the loans underpinning the Apple (AAPL) credit card portfolio from rival Goldman Sachs (GS) , extricating it from one of the last businesses related to the ill-fated excursion into retail banking. In Q3 2025, GS had a net loss rate 2x the average for Peer Group 1 and orders of magnitude above Morgan Stanley (MS) and other asset gatherers as shown below. Source: FFIEC Hopefully JPM cut a better deal with AAPL than did GS CEO David Solomon , who paid a considerable price for the operational and financial expenses from this modest sized $20 billion portfolio. JPM's growing credit card book was about $240 billion at the end of Q3 2025. “This transaction substantially completes the narrowing of our focus in our consumer business,” said Solomon in a statement. In our next issue of The Institutional Risk Analyst, we’ll be looking at the universal banks led by Goldman Sachs (GS)  and Morgan Stanley (MS) in front of next week's earnings. We’ll also provide our thoughts on financials for 2026 and review the positioning of our portfolio for the New Year.  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 05, 2025  | In this edition of The Institutional Risk Analyst , we focus on a top performing US bank stock, LendingClub Corporation (LC) . We added LC to our bank surveillance group in 2H 2025 and the progress of this bank has been remarkable. Below we drill down into why this relative upstart managed to outperform some of the largest US lenders in 2025 and raised the bar for other fintech lenders in terms of operational leverage. In the past six months, LC has been the best performing bank in the US, exceeding even former market leader SoFi Technology (SOFI)  in the stock performance rankings. The only reason that LC did not figure more prominently is the WGA Bank Top 100 in Q4 2025 was its small size, just $11 billion in bank assets and $2 billion in market cap.  Size can be a major disincentive for institutional investors, yet tiny LC has hundreds of institutional shareholders. Source: YahooFinance

December 22, 2025  | The year 2025 will be remembered as the year when both gold and silver exploded on the upside as worries about the dollar and the fiscal posture of the United States drove investors to seek inflation hedges. Bitcoin, meanwhile, lost a lot of momentum and seems destined to end the year lower and weaken in 2026. But the key takeaway is the wonderful asymetry of precious metals given the weakness of the dollar. "Looking ahead, the 2026 and 2027 outlook for the metal remains bullish," notes JPMorgan last week on gold prices. "Prices are expected to push toward $5,000/oz by the fourth quarter of 2026, with $6,000/oz a possibility longer term. Central bank and investor demand for gold is set to remain strong, averaging 585 tonnes a quarter in 2026. " Both gold and silver are asymmetrical trades, as we discussed in our interview with James Rickards (“ Jim Rickards: False Narratives in AI & Crypto and the Case for Gold ”).  Technical factors combine with worries about the fate of the dollar to push silver and gold prices sharply higher.  As Rickards said to us last year: "Humans are incredibly adaptable when it comes to money. Witness crypto as a case in point. If you are the shepherd of the dollar, you cannot take the currency for granted. People will create new currencies when the old money fails. That is why the Treasury should begin to buy gold again to demonstrate that the dollar is real." Silver in particular caught fire in Q4 due to a powerful mix of surging industrial demand (EVs, solar, AI), strong investor interest as a safe haven amid economic uncertainty, a tight physical supply (mining constraints), and the "cheapness" of silver relative to gold, creating a perfect storm for record-high prices.  Silver has always been the common man’s metal, but the unique combination of industrial necessity and monetary appeal has helped to resolve its historical "identity crisis," making it both an industrial input and an investment asset.  Below we talk about some of the leading names in our metals surveillance portfolio. The full list is available below to subscribers of the Premium Service  of The Institutional Risk Analyst . And remember that our Winter Sale ends 12/31/2025!

“Beautiful credit! The foundation of modern society. Who shall say that this is not the golden age of mutual trust, of unlimited reliance upon human promises? That is a peculiar condition of society which enables a whole nation to instantly recognize point and meaning in the familiar newspaper anecdote, which puts into the mouth of a distinguished speculator in lands and mines this remark: 'I wasn't worth a cent two years ago, and now I owe two millions of dollars.” ― Mark Twain, The Gilded Age January 1, 2026 | This week in “The Wrap,” we feature a special comment focused on the past year and our expectations about what to expect in 2026. The past year was mostly about markets adjusting to President Donald Trump , but 2026 is likely to be more about the investing world learning to ignore the White House. And don't miss our new weekly podcast with Julia La Roche this Saturday. Does the Fed Lower Rates? Yes, but... First and foremost, what is going to happen with the Fed in 2026?  Much less than most people imagine. That's why Fed governors have 14 year terms, with appointments staggered so one new term begins every two years, ensuring independence . Over the past year, the Trump Administration has made a great fuss about implementing radical changes at the central bank and lowering interest rates to ~ zero.  But will it actually happen? Probably not. T he Federal Reserve is widely expected to lower interest rates again, but most forecasts point to just one more cut in early 2026. Some observers expect to see more changes in policy by the Federal Open Market Committee as Jerome Powell  ends his term as chairman. But here's the big question: Will then Governor Powell retire or will he remain on the Board through the end of his term in January 2028 to block the Trump agenda? Powell has declined to say whether we will remain on the Board. And even if Powell does retire, will Fed policy change substantially? Our view is no. The truncated term of Governor Steven Miran  ends in January and the assumption is that President Trump will fill this vacancy with a new chairman. But even with a new chairman, President Trump’s ability to dictate Fed policy will be limited. And whoever Trump selects will betray him as soon as the Senate confirms the nomination. As we noted in an earlier missive, the new FOMC starting in 2026 is likely to be more hawkish and less inclined to accede to the demands of President Trump. Regardless of whom President Trump appoints chair, the Fed Chairman must run the FOMC by consensus or fail. Fed chairs who lose FOMC votes usually resign the next day. More important, if the Republicans lose control of Congress next November, then President Trump immediately becomes a lame duck and will likely face impeachment by Congress in 2027. Trump's ability to demand policy changes from the Fed or other parts of the government will be diminished greatly.  Regardless of what happens politically in Washington, though, the new Fed chairman is likely to oversee some significant changes in how the Fed manages its open market operations and other areas, a policy issue controlled by the Board and particularly the Chairman rather than the FOMC. One big change we expect to see under the new Fed chairman is in the size of the Fed’s balance sheet. The table below from Bill Nelson at Bank Policy Institute  shows the astronomical increase in bank reserves orchestrated by the Fed's Washington staff since 2008. Since the great financial crisis, the required level of reserves has gone up several orders of magnitude? Really? And don't forget to read our essay in The International Economy , " How to Really Reform the Fed ." “The Fed stumbled into a floor system in September 2008 when its emergency lending followed by three rounds of QE boosted reserves far above the level the banking system needed, pushing the federal funds rate below the level the IORB rate,” Nelson writes. “It is worth emphasizing that the objective of QE is to reduce long-term rates by buying long-term assets; the resulting increase in reserves is an incidental side effect.” Of course, the Fed has been buying mostly short-term Treasury debt, an implicit admission that the role of the central bank is to monetize Treasury issuance rather than stimulate the economy. The fiscal realities of the federal debt has forced the Fed to conform its purchases to the maturity profile of the Treasury debt issuance, mostly T-bills. Fed purchases of Treasury debt subsidize the deficit with more inflation, but do little to help housing or the economy. Read our latest column in National Mortgage News  (“ A mortgage wish list for 2026 ”).  Worries about the deflationary effects of a debt crisis cause the Fed to err on the side of too much QE and an overly big balance sheet, thus the incredible increases in the estimates of Fed staff as to the "required" level of reserves. Our earlier concerns about liquidity stress in the US markets turned out to be correct, but the Fed buried the mounting liquidity problems in private markets at the end of 2025 in lots of short-term cash. Meanwhile, LT interest rates for Treasury bonds and residential mortgages rose in the second half of 2025 due to massive government debt issuance.  Veterans of the emerging markets are familiar with the syndrome of central banks buying short-term government debt. Of course, the United States is the oldest emerging economy in the world. But the current regime shows strong historical antecedents of cronyism and patronage politics that extend back to before the Gilded Age, the most corrupt period in American politics. The Mark Twain quote at the top of this comment pretty much sums up the past year. The impetuous and impulsive regime led by Donald Trump is careening headlong into a generational reset of credit metrics and asset valuations, a maxi market correction that may be memorialized in textbooks alongside the great financial crisis of 2008. By 2028, we will be two decades since the collapse of the US financial markets and primed for a new deflationary episode, this time led by corporate credit and the dissolute US Treasury. We expect to see the situation with corporate credit worsen in 2026, setting the stage for a sustained residential housing market decline in 2027-28. And nobody in the Trump White House, who generally get their news about the economy and financial markets from Newsmax , even suspects the approaching danger.   Cracks Widen in US Credit Last year we saw concerns about the private credit and private equity markets begin to surge, but the best is yet to come. Credit is slowly rolling over in the US markets, one reason why equity markets around the world are likely to outperform the US in 2026. Under-utilized banks have fed the two-headed mania in private credit and private equity caused by quantitative easing in 2020-2023 with loans to non-depository financial institutions (NDFIs). Source: FDIC/WGA LLC Equity allocations have seen significant shifts toward foreign markets since early in 2025, with a notable trend emerging early last year showing a major rotation out of the U.S. equities. Fund managers have been slashing U.S. stock holdings by the most on record as the Trump/AI/crypto narrative fades. AI bellwether Nvidia Corp (NVDA) has lost ground in the past month but is still up 40% YTD or 2x the S&P 500. But NVDA is no longer an automatic buy. In a lagging sign of the times, Masayoshi Son led SoftBank (SBTBF) just agreed to acquire data center investor DigitalBridge for $4 billion, CNBC reports. The deal is expected to close in the second half of next year. In a typically upbeat statement, Son said the deal “will strengthen the foundation for next-generation AI data centers.” SFTBF was up almost 200% in November, but got crushed by concerns over AI spending by large tech players like Oracle (ORCL) . The chart below from YahooFinance shows NVDA, SFTBF and the S&P 500. NVDA is up 1,330% over the past five years and is by far the best performer, but SBTBF reflects the manic investment style of Masayoshi Son. Source: YahooFinance The strong rally in silver and gold, and the weakness of crypto tokens, are leading the decline in US fortunes when it comes to the equity markets. Literally dozens of crypto ventures have failed in the past year, notes Comsure . C rypto exchange collapses have led to $30–50 billion in investor losses, the UK consultancy reports . But the greater concern is the mounting backlog of corporate insolvencies, a real and growing danger that could push the US into recession even as short-term interest rates fall. According to statistics released by the Administrative Office of the U.S. Courts, annual bankruptcy filings totaled 542,529 in the year ending June 2025 , compared with 486,613 cases in the previous year. Business filings rose 4.5 percent, from 22,060 to 23,043 in the year ending June 30, 2025. Non-business bankruptcy filings rose 11.8 percent to 519,486, compared with 464,553 in the previous year. The growing number of individual and corporate insolvencies are part of a rebound of a long-term trend of falling defaults. For more than a decade, total bankruptcy filings fell steadily, from a high of nearly 1.6 million in September 2010 to a low of 380,634 in June 2022. Total filings have increased each quarter since then, but like loan default rates, they remain far lower than historical highs. Like credit metrics, the statistical measures of default reflect a growing tendency for negotiation rather than formal events of default.  Some estimates suggest that 1 out of three insolvencies are restructured out of court. As the chart below illustrates, cash accrued but not collected is over $100 billion, but banks are avoiding taking possession of foreclosed real estate (REO). Source: FDIC One way to measure the stress building in private equity and credit is the poor performance of lenders to private businesses. Long-term equity returns for business development companies (BDCs) have been hammered since the middle of 2025 and now are running at a negative 4% vs up 16% appreciation for the S&P 500, KBW reports.  The chart below shows the VanEck BDC (BIZD) ETF vs the S&P 500. Source: Google Finance “Short sellers are taking note of rising signs of stress within the private credit market, and using publicly traded BDCs to signal that outlook,” notes our colleague Nom de Plumber from his perch high in the world of large bank risk. Banks have substantial exposures to private equity, but most of the risk is borne by private lenders lower in the credit stack. Or at least that is what many bankers believe. PIK or “Payment-in-Kind” refers to a mystical financial arrangement where interest or dividends are paid with additional securities, goods, or services instead of cash, allowing companies to conserve cash flow but increasing debt principal. PIK is commonly seen in high-risk sectors like leveraged buyouts and venture debt, with examples including PIK Notes and PIK Interest. But there are literally thousands of private equity financed companies now using PIK to avoid default. Income from payment-in-kind debt, which allows borrowers to defer interest and can signal an inability to pay with cash, has been rising across BDCs, reaching 7.9% in the third quarter, according to data from Raymond James . In the third quarter, 3.6% of investments across BDCs were on non-accrual status, a designation that indicates a lender expects losses, Raymond James data show. Like REITs, BDCs are pass through vehicles that must pay out most income. “BDCs still accrue the PIK loan coupons as non-cash income, but lack the corresponding cash to pay the required dividends, to maintain their favored IRS treatment,” NDP notes further. “If they lose that tax treatment, there is risk that such PIK loan coupons become taxable at the BDC level, rather than treated as simply passed through to BDC shareholders for taxation.  Then, the BDCs would lack the cash to pay the IRS, too.” The growing number of illiquid private equity-backed companies presents a huge problem for Wall Street sponsors and lenders. “Even with interest rates falling and the number of initial public offerings increasing in recent months, it has not made a dent in the industry’s backlog of at least 31,000 companies valued at $3.7 trillion, according to research from Bain & Company,” Maureen Farrell reported in The New York Times . She continues: “That amount exceeds last year’s record of 29,000 companies valued at $3.6 trillion. Many recent attempts by private equity firms to sell companies or take them public have stalled.... The private equity firm Thoma Bravo has failed repeatedly over the past several years to sell two companies it owns for an acceptable price. Thoma Bravo bought J.D. Power, the consumer analytics company, and ConnectWise, a software company, in 2019 and hasn’t found a buyer for either. This year, in light of the tough market, the private equity firm did not attempt another sale, according to two people briefed on the matter." Consider an appropriately named example. United Site Services, a provider of portable toilets owned by private equity firm Platinum Equity , filed for bankruptcy with plans to wipe out $2.4 billion in debt and hand the company to senior lenders, Steven Church, Reshmi Basu, and Harry Suhartono of Bloomberg report . They write: "The bankruptcy case comes less than 18 months after the company reshuffled its debt stack in order to raise cash. Platinum, which acquired United Site in 2017, would likely see its investment wiped out, since shareholders cannot collect anything in bankruptcy unless creditors are paid in full. The company owes secured lenders more than $2.7 billion, court filings show." We expect to see a growing number of BDCs, private equity sponsors and other parties forced to recognize asset impairments and related losses in the New Year. The backlog of private equity companies using PIK or other means to avoid bankruptcy is going to be cleared out substantially as it becomes clear that merely lowering short term interest rates will not make moribund PE companies attractive to investors. The damage done to the PE sector is massive and could see more than half of all managers unable to raise new funds. These Lame Duck managers will eventually exit the sector once the remaining proceeds of asset sales have been returned to investors. The Cost of Quantitative Easing Weakness in the US equity markets in 2026 could contribute to a negative environment for credit that has been years in the making. Moreover, we expect that the steady decline in bank default rates viewed over the past year, an accounting illusion manufactured by bankers, investment sponsors and regulators acting together, will end when it becomes apparent that the Fed is not coming to the rescue of the private equity and credit community. If we assume that visible default rates on bank loans and private debt are understated by the same monetary excesses and forbearance that caused bankruptcies to fall for a decade, the period ahead is very likely going to involve a painful and extended reversion to the mean in terms of credit expenses. The charts below shows delinquency and loss-given default on $13 trillion in mostly prime bank loans as of the end of Q3 2026. As any bank CEO or chief financial officer will tell you, credit loss rates have been very low for a very long time. Source: FDIC Source: FDIC/WGA LLC Although the Fed's QE program inflated home prices 50% it also took net loan loss rates for banks down to ~ 50% of par in 2021, this compared to ~ 95% after 2008. QE enabled some very stupid and foolish behavior by investors and lenders. These behaviors are only partly described by the nominal level of interest rates because, of course, we must account for leverage in calculating the full scope of the prospectives losses. Lend More Upon Default (LMUD) has concealed the scope of the disaster and even pushed down reported loan default rates, but we suspect that 2026 earnings results will see the benign trend in bank credit defaults come to an end. In our next issue of The Institutional Risk Analyst, we’ll be looking at the universal banks led by Goldman Sachs (GS)  and Morgan Stanley (MS) . We’ll also provide our thoughts on financials for 2026 and review the positioning of our portfolio for the New Year.  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. 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“The banks are all cheap; Capital One is the cheapest of all. It is the one that I think offers most upside and I have felt that for 60 points.” Jim Cramer, CNBC December 26, 2025  | Is Capital One Financial (COF) the top consumer lender in the US? Is the stock cheap? Jim Cramer at CNBC is certainly pounding the table. We like COF, but liked Discover Financial more. Like the way we feel about BBT vs Truist, the former a beloved exemplar destroyed by M&A leaving us with confused mediocrity and an absurd name in the latter. Capital One has experienced significant issues with expansion into non-credit card lending areas, most notably a major failure in mortgage lending and ongoing performance issues and regulatory scrutiny related to auto loans and savings accounts. And then there was the COF expansion into energy lending in 2020, which exposed them to risks from volatile energy prices, leading to a need for waivers from regulators (CFTC) for increased derivatives exposure. In this Christmas week edition of The Institutional Risk Analyst , we focus on the top independent bank lenders who specialize in providing unsecured credit to consumers. Our latest conversation with Julie Hyman of YahooFinance is below. The top four banks by assets plus Capital One account for 50% of all consumer loans in the US, but the smaller players in the consumer specialization group are also among the top performing stocks in the WGA Bank Top 50 . We just added one of these, LendingClub Corp (LC) , to our surveillance group, as discussed below for subscribers to our Premium Service . Please do note that our Winter Sale ends on New Year’s Eve 2025.  In the past six months, LC has been the best performing bank in the US, exceeding even SoFi Technology (SOFI)  in the stock performance rankings. COF has also performed well over the full year, but the poor GAAP earnings performance has not helped the stock – even with Jim Cramer of CNBC pounding the table for the largest monoline credit card issuer. The poor earnings performance at COF is the result of noise from the merger with Discover Financial, once upon a time one of the top performing US banks.   Source: Google Finance (12/24/25) Capital One's third quarter 2025 earnings were not weak; in fact, they beat analyst expectations with strong top-line growth and adjusted earnings. The perception of weakness stems from high non-recurring expenses related to the Discover acquisition. But Jim Cramer is right about the value proposition, we just wonder about COF's tendency to wander away from consumer credit.