The 10% Credit Card Rate Cap: A Looming Storm for Regional Banks and Wall Street's Risk Appetite

The financial services sector, long reliant on the steady cash flows from credit card interest income, now faces a seismic policy shift. President Donald Trump's proposal to cap credit card interest rates at 10% for one year has sent ripples through markets, particularly among regional banks, which derive a disproportionate share of their revenue from this volatile stream. While the exact percentage of credit card interest income in regional banks' total revenue remains opaque, industry-wide data and institutional earnings reports suggest a deeply entrenched dependency. For instance, the 2025 Global Payments Report notes that interest income accounted for 46% of total revenues in global payments in 2024, with consumer credit cards contributing 32% of revenue in key markets like North America. This underscores the fragility of profitability models now under threat.

Regional banks, such as Regions Financial Corporation, exemplify this vulnerability. In Q3 2024, card and ATM fees generated $122 million in non-interest income for Regions, a 3.4% year-over-year increase. Yet this figure masks the broader reliance on interest income from credit cards, which, while not explicitly quantified, is a cornerstone of their revenue structure. The Federal Reserve's data further highlights the precariousness of this model: revolving credit card balances hit a record $645 billion in Q3 2024, but delinquency rates doubled to 3.52% from pre-pandemic levels, signaling deteriorating asset quality. A rate cap would exacerbate these trends, reducing both the spread banks earn and the willingness of subprime borrowers to carry balances-a demographic that disproportionately fuels net interest income.

JPMorgan Chase, a bellwether for the sector, has already sounded alarms. Its CFO, Jeremy Barnum, warned that a 10% cap would force the bank to tighten lending criteria and shrink its credit card portfolio, directly undermining profitability. JPMorgan's Q3 2025 results, which showed a 7% year-over-year increase in card services sales to $360 billion, illustrate the scale of exposure. For regional banks with less diversified revenue streams, the impact could be catastrophic. Analysts estimate that subprime credit card portfolios-already strained by rising defaults-might become unprofitable under such a cap, compelling banks to pivot toward merchant fees or other income sources. However, this shift risks diluting the value proposition for cardholders, who benefit from rewards programs and other perks tied to interest income.

Wall Street's risk appetite, too, is likely to contract. The banking sector's net interest margin (NIM) has been a key driver of earnings, with FDIC data showing a 4.2% year-over-year increase in net interest income for insured banks in Q3 2024. A rate cap would erode this margin, particularly for regional banks with limited capacity to absorb losses. The Philadelphia Fed's analysis of large bank credit card data reveals that 10.75% of active accounts made only minimum payments in Q3 2024-a record high. With consumers already stretched, further restrictions could trigger a cascade of defaults, amplifying credit risk and deterring investors from overexposed institutions.

The policy's short-term focus-Trump's cap is temporary-adds another layer of uncertainty. Banks may hesitate to invest in long-term customer relationships or innovation if regulatory shifts remain unpredictable. This volatility could drive capital away from regional banks toward larger institutions with broader revenue bases, exacerbating market concentration. As one analyst noted, "The 10% cap isn't just a rate cap"-it's a cap on adaptability.

In conclusion, Trump's proposal, while framed as a consumer protection measure, risks destabilizing the financial ecosystem. For regional banks, the potential collapse of credit card interest income-a revenue stream that, while not precisely quantified, is undeniably central-poses an existential threat. Wall Street's risk appetite, already cautious in a high-rate environment, may further retreat as the sector grapples with regulatory and credit risks. The coming months will test the resilience of banks and investors alike, with the broader economy bearing the consequences of a policy that prioritizes short-term relief over long-term stability.