BREAKINGVIEWS-Lending boom raises economic hopes and bank fears

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Stephen Gandel

NEW YORK, Jan 14 (Reuters Breakingviews) - Wall Street isn’t suffering from a slowdown on Main Street just yet. The four largest U.S. lenders expanded their loan books by $385 billion in 2025, a nearly 10% jump and the biggest increase in years. The surge defies concerns about a slowing economy and growing competition from the rising titans of private credit. Yet, as regulatory oversight recedes, much of this boom reflects an increasingly complex relationship between traditional banks and these alt-lenders. A hale outlook for now may hide new, difficult-to-gauge risks.

Lending is the lifeblood of consumption and corporate expansion. There was every reason to expect both to slow in 2025, whether from tariffs, a labor-market slowdown, policy whiplash, or otherwise. Instead, fourth-quarter results from Bank of America BAC.N, Citigroup C.N and Wells Fargo released Wednesday jibe with JPMorgan’s report a day earlier, showing stronger-than-expected loan growth. Along with gains in investment banking and trading, that pushed earnings, excluding some one-time charges, at Citi, Wells Fargo WFC.N and Bank of America up by 24%, 14% and 13%, respectively.

This isn’t entirely a story of roaring consumer demand, though. At Bank of America, for instance, lending to average people through auto loans, credit cards, mortgages and so on rose just 2% last year. Corporate lending grew by 3%. White-hot expansion instead happened on the bank’s trading desk, which lends to specialty financial firms, private credit investors, private equity funds and the like. There, activity soared 30%.

It's not that these loans don’t support economic activity. Private credit backs plenty of mid-sized companies. Buy-now-pay-later schemes offered by financial technology upstarts often rely on bank funding. But there are byzantine layers of leverage – whether to continuation funds shuffling assets about, loans to support dividends back up to buyout shops, lines of credit to special-purpose vehicles – that are accreting in the system. Just look at the spectacular collapses of First Brands and Tricolor, which dealt a blow to banks including JPMorgan JPM.N.

Boss Jamie Dimon admits the picture is murky, saying that while his bank's lending to alternative lenders is safe and proper, it is also regulatory arbitrage. In a call with analysts, he said that he urges regulators to ask whether the system is “better off doing it that way as opposed to another way.” Notably, JPMorgan for the first time disclosed its own calculation of exposure to non-bank financiers, which climbed from $50 billion in 2018 to $160 billion last year. If the head of the biggest firm on Wall Street is asking these questions while still diving in, it’s worth wondering what dangers might be lurking.

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CONTEXT NEWS

Bank of America, Citigroup and Wells Fargo all reported better-than-expected earnings in their fourth quarter on January 14, according to analyst estimates compiled by Visible Alpha. Citi recorded the fastest pace of earnings growth of the group, at 24% year-over-year. Wells Fargo and Bank of America notched 14% and 13%, respectively.

(Editing by Jonathan Guilford; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GANDEL/ stephen.gandel@thomsonreuters.com))