In 2025, the U.S. banking industry experienced solid growth, demonstrating resilience despite ongoing challenges in the global economy. Supported by rising loan and deposit growth, higher net interest income, and improved charge-offs, the financial sector appeared to be on stable footing heading into 2026. However, risks continue to linger, particularly in the form of unrealized securities losses, growing exposure to margin loans, and increasing reliance on private equity. These challenges will require careful management to avoid potential disruptions in the coming year.
2025 Banking Performance: A Strong Foundation
The overall performance of U.S. banks in 2025 was notably positive, with several key metrics pointing to a robust financial health in the sector. According to a recent Federal Deposit Insurance Corporation (FDIC) survey of 4,379 institutions, aggregate net income reached $79.3 billion in the third quarter, marking a 13.5% increase compared to the previous quarter. The return on assets ratio also improved, rising to 1.27% from 1.09% in the same period last year.
The driving forces behind these positive results included higher net interest income, which grew by $7.6 billion, or 4.2%, due to a widening interest rate spread. This spread, which represents the difference between the interest earned on investments and the interest paid on deposits, is the primary source of revenue for traditional banks. The FDIC reported that yields on interest-earning assets rose by 11 basis points during the quarter, outpacing a 2-basis-point increase in funding costs.
The banking sector also benefitted from an uptick in loan growth. Total industry loans increased by $159 billion, or 1.2%, driven by loans to non-depository financial institutions and loans used to purchase or carry securities, including margin loans. Meanwhile, provision expenses, which cover potential losses, declined by $9.2 billion, further contributing to the improved financial performance.
Unrealized Securities Losses: A Lingering Challenge
Despite the overall positive results, one of the most pressing concerns for U.S. banks heading into 2026 is the issue of unrealized securities losses. These losses stem from securities purchased during the COVID-19 pandemic when interest rates were at historic lows and prices for long-term fixed-income securities were elevated. As interest rates have risen in the past year, the value of these securities has decreased, creating unrealized losses on banks’ balance sheets.
While these losses fell by 14.7% in the third quarter of 2025, dropping to $337.1 billion, they still represent a significant risk for banks. If interest rates remain elevated, the value of these securities could continue to fall, leading to further losses. This situation presents a potential headache for banks, particularly those that hold large amounts of these securities, as it could impact their capital positions and their ability to absorb future shocks.
The FDIC has warned that risks associated with securities losses could persist if long-term interest rates stay elevated and do not follow short-term rates lower, which could leave banks vulnerable to further financial instability.
Margin Loans and Private Equity: Heightened Exposure to Risk
Another significant risk facing the U.S. banking industry is its growing exposure to margin loans and private equity investments. Margin loans, which are loans secured by stocks or other assets, typically carry higher risk than traditional loans, as the value of the collateral can fluctuate with market conditions. If equity markets experience a sharp correction or if high-profile private equity-backed borrowers default, banks could face significant losses.
The FDIC highlighted this risk, noting that banks’ increasing involvement in private equity and private credit markets could lead to asset quality challenges. A recent Moody’s report estimates that U.S. banks’ exposure to private equity and private credit is around $300 billion, making this a key area of concern. Banks’ ties to private equity firms, both as lenders and competitors, have increased in recent years, raising the risk of losses if private equity firms face financial difficulties.
Recent bankruptcies, including those of subprime auto lender Tricolor and auto parts supplier First Brands Group, have underscored the risks posed by private equity exposure. These bankruptcies have resulted in significant losses for several major lenders, including JPMorgan Chase, Jefferies Financial, and Zions Bancorp. While these failures are seen as isolated incidents, they have contributed to investor caution and raised concerns about the stability of the banking sector.
Uneven Performance and Risks in the Sector
While the banking industry as a whole is performing well, the risks are not evenly distributed. As David Johnson, CEO of financial-services company Vervent, pointed out, the industry remains profitable, well-capitalized, and liquid, but risks are concentrated in certain areas. In particular, credit quality remains strong at the system level, but there are pockets of stress, especially in the auto and credit card sectors.
Johnson also highlighted that commercial real estate (CRE) poses a significant risk for the banking sector. The challenges facing the CRE market are less about falling property values and more about the timing of maturities and refinancing. With many CRE loans set to mature in the coming years, banks could face a wave of defaults if property values do not stabilize or if borrowers are unable to secure refinancing. This presents a significant “calendar risk” for banks, particularly those with large exposure to commercial real estate.
Geopolitical Risks and Margin Pressure
Geopolitical tensions around the world are also creating risks and opportunities for the banking sector. While trading desks, investment banking fees, and capital markets activity have provided some growth momentum for banks in 2025, the core lending and deposit businesses are facing growing margin pressure. As interest rates continue to rise, the cost of funding is increasing, which could squeeze net interest margins for banks that rely heavily on traditional lending activities.
Julie Muckleroy, global banking strategist at SAS, noted that the banking sector’s performance in 2026 will depend on “precision.” Strategic decisions, deliberate execution, and the ability to turn insights into action will become even more crucial as banks navigate an evolving interest rate environment and manage their exposure to high-risk assets.
Looking Ahead: A Solid Foundation, But Risks Ahead
Despite the risks, the U.S. banking industry is poised to continue on a solid growth trajectory in 2026. However, managing the risks associated with unrealized securities losses, margin loans, and private equity exposure will be critical in ensuring long-term stability. Banks that can execute effectively on these issues and maintain strong underwriting discipline will be well-positioned to thrive in a changing financial landscape.
As we move into the new year, it is clear that the U.S. banking industry will face a mix of challenges and opportunities. The overall health of the sector remains strong, but careful risk management will be key to sustaining profitability and maintaining investor confidence in 2026 and beyond.
