Authored by Christopher Whalen via DailyReckoning.com,
Last week, the Federal Deposit Insurance Corp released the industry data for US banks for 2025.
On the surface, the numbers look reassuring, even strong. But beneath the calm headline figures lies a growing risk that investors should not ignore.
Domestic deposits increased for the sixth consecutive quarter in Q4 2025 by $318.3 billion or 1.8%, the FDIC reports. Loans grew by 2% in Q4 and almost 6% YOY. Foreign deposits grew 11%, but subordinated debt and FHLB advances each fell ~ 14% as banks shed excess capital and funding.
U.S. bank loan growth in 2025 was robust,with total loans and leases reaching $13.4 trillion by year-end, a sequential increase in Q4 and a 5.9% annual growth rate, driven by larger institutions. Personal loan balances hit $2.2 trillion, while credit card debt rose 5.5% annually but the utilization rate for credit cards is still less than 20% of the total credit available. Yet behind this placid picture is a growing threat to banks and financial markets. At first glance, this looks like a healthy banking system. But that placid picture masks a fast-growing vulnerability that could become the next major pressure point for banks and financial markets.
The fastest growing bank asset category is loans to non-depository financial institutions (NDFIs), a corner of the financial system that regulators have struggled to monitor and control,up 7% in Q4 vs Q3 and up 35% YOY to $1.4 trillion at year-end 2025. With growing signs of credit stress among nonbank companies, banks will eventually pull back from lending to NDFIs. The problem is timing. By the time banks tighten lending standards, many private companies dependent on this funding may already be heading toward collapse, and those failures will not stay confined to the shadow banking system.
They will hit bank balance sheets directly.
The latest default involving UK mortgage issuerMarket Financial Solutionsthreatens a £930 million shortfall in collateral backing loans to Apollo, TPG, other Wall Street private credit sponsors that are heavily involved with lending to private credit and equity, and various speculative ventures involving the current “AI investment boom.”
“The collapse of MFS, which attracted backing from firms including Barclays Plc, Apollo Global Management Inc.’s Atlas SP Partners unit, Jefferies Financial Group and TPG, is the latest crisis to hit both banks and direct lenders, and puts a spotlight on asset-based financing,” Bloomberg reveals.
“Accusations of double pledging also emerged in the collapses last year of US auto parts supplier First Brands Group and sub-prime auto lender Tricolor Holdings.”
Source: ZeroHedge News
