Strong earnings from Ally Financial, Fifth Third Bancorp, and Regions Financial have boosted investor confidence in U.S. banks. All three beat revenue and profit expectations, calming fears of another banking crisis. But beneath the surface, risks are building, and financial experts warn that the sector’s stability is far from guaranteed.

As regulators weigh easing some rules while tightening others, the U.S. banking system in 2025 faces a complex balancing act: Can it promote growth without repeating the mistakes of the past?

Top Risks Facing U.S. Banks in 2025

Despite strong quarterly results, several structural risks threaten the banking sector:

Rising Credit Risk

High interest rates and slowing growth make it harder for borrowers, especially in commercial real estate, consumer credit, and small business lending, to repay loans. This increases the likelihood of defaults and loan losses.

Lingering Fallout from 2023 Bank Failures

The collapse of Silicon Valley Bank and other regional lenders in 2023 exposed weaknesses in liquidity management and risk oversight. Those lessons haven't been forgotten, and the fear of another failure still looms.

Speculative Lending and Investment Exposure

Banks tied to high-risk firms, especially those in the Russell 2000 index, face potential losses if markets decline or the economy deteriorates.

• Risky lending practices: Concerns have emerged about risky lending practices spilling over from the private credit market into the broader banking space. JPMorgan Chase CEO Jamie Dimon warned of potential hidden risks after a loan write-off related to an auto parts supplier.  In the third quarter of 2025, JPMorgan Chase reported a $170 million charge-off related to the bankruptcy of subprime auto lender Tricolor.  The charge-off came from JPMorgan's wholesale lending unit, which provided funding to Tricolor Holdings, a used-car dealer that focused on subprime borrowers. Tricolor filed for bankruptcy in September 2025 following alleged fraudulent activity. JPMorgan CEO Jamie Dimon described the loss as "not our finest moment" and a sign of potential lending excess in the credit market.
• Increased bank exposure: The Federal Reserve has noted an increase in bank credit commitments to nonbank financial institutions (NBFIs), including private credit and private equity firms. 

Market Volatility and Geopolitical Risk

Sharp swings in interest rates, inflation, or global tensions can impact trading revenues and asset values, particularly for banks reliant on investment income.

What’s Being Done to Prevent Another Banking Crisis?

In response to past failures, regulators have rolled out reforms to strengthen bank resilience:

• Stricter Capital and Debt Requirements: Banks with assets over $100B must now hold more long-term debt as a cushion against losses.
• Enhanced Liquidity Standards: Banks are required to hold more high-quality, liquid assets (like U.S. Treasuries) to prevent bank runs and maintain depositor trust.
• Stress Testing: Stress tests now simulate real-world shocks, including mass withdrawals and real estate slumps. New proposals aim to average results over two years to reduce volatility.
• Living Wills for Big Banks: All major banks must maintain “living wills” that detail how they can be safely dismantled during a crisis.
• Emergency Backstops: The “systemic risk exception” used in 2023 remains available to protect uninsured deposits in future crises.

Which Bank Rules Are Being Loosened And Why It Matters

At the same time, some regulations are being relaxed, particularly for Wall Street giants.

Lower Capital Buffer Requirements (eSLR)

• The Enhanced Supplementary Leverage Ratio may be cut from 5% to 3.5%–4.5%
• Aims to free up capital for lending and low-risk investments (e.g., Treasuries)
• Critics argue this reduces crisis protection

Excluding Safe Assets From Leverage Calculations

• U.S. Treasuries and central bank reserves may be removed from leverage exposure
• Encourages banks to hold more "safe" assets, but could hide real risk

Relaxed Long-Term Debt Rules (TLAC)

• Lower debt requirements for Global Systemically Important Banks (GSIBs)
• Frees up liquidity but weakens buffers in downturns

Why These Regulatory Changes Matter

• Thinner Capital Buffers: Less protection during downturns could trigger instability, especially if multiple banks are affected at once.
• More Risk-Taking: With relaxed rules, banks may increase leverage or chase risky assets to boost returns.
• Overconcentration in Treasuries: Holding too many “safe” assets can backfire if interest rates spike, devaluing those holdings.

What Safeguards Protect the Banking System?

Despite rollbacks, several critical protections should remain in place:

• Risk-based capital rules for high-risk activities
• Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
• FDIC insurance up to $250,000 per depositor
• Ongoing regulatory oversight and enforcement
• Required resolution plans for large institutions

These form the backbone of post-2008 reforms and are credited with preventing deeper crises in recent years.

Banking Safety in 2025 Is a Balancing Act

As 2025 unfolds, the U.S. banking system sits at a crossroads. Regulators are trying to strike a balance between financial stability and operational flexibility. Loosening some rules may help banks lend more and support economic growth, but it also reintroduces the kind of risks that contributed to past crises.

Why Strong Bank Earnings Don't Eliminate Risk

• Earnings ≠ Stability: Ally, Fifth Third, and Regions beating expectations is great news in the short term, but quarterly profits are not reliable indicators of long-term systemic resilience. Earnings can mask underlying risk exposure, especially if loan losses haven’t hit yet or are being delayed by temporary economic strength.
• High Rates Are a Double-Edged Sword: Yes, high interest rates help net interest margins (i.e., profitability from lending), but they also increase default risk, especially in commercial real estate (CRE), small business loans, and consumer credit, sectors already showing signs of stress.
• Real Estate Time Bomb: Many CRE loans are due for refinancing soon, and high rates make that difficult, this could create a delayed wave of defaults that banks must absorb, even if things look good today.

Why Regulatory Rollbacks Deserve Concern

Loosening leverage ratios, capital buffers, and TLAC requirements could:

• Encourage risk-taking in search of returns (especially in a higher-rate environment)
• Reduce shock absorption capacity in downturns
• Lead to overconcentration in “safe” assets like Treasuries, which ironically lost value rapidly in 2022–2023 due to rate spikes

This creates a scenario where the system looks strong on paper but is actually less resilient to unexpected stress events.

While protections like stress tests, capital buffers, and deposit insurance remain in place, the potential for further relaxation of key rules, especially for the largest banks, raises concerns among financial watchdogs and policymakers. Whether these changes result in a stronger, more agile, financial system or leave it vulnerable to future shocks will become clear only with time and the next economic downturn.

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.