Profit Resilience in U.S. Big Banks: Navigating High Rates and Regulatory Shifts

The U.S. banking sector has demonstrated remarkable resilience in 2025, with major institutions reporting robust earnings despite the dual challenges of high interest rates and evolving regulatory frameworks. This performance underscores the adaptability of large banks to shifting macroeconomic conditions, though it also raises critical questions about the sustainability of their current strategies.

A Surge in Investment Banking and Trading

The most striking feature of Q4 2025 earnings reports is the revival of investment banking and trading activities. According to a report by , global investment banking revenue surged 15% year-over-year to nearly $103 billion, driven by a record $5.1 trillion in M&A activity. JPMorgan Chase, for instance, led the league table, with investment banking fees rising in low single-digit percentages and markets revenue growing in the low teens. Citigroup and Goldman Sachs also benefited, with the latter topping M&A rankings despite a modest 4.9% decline in EPS, attributed to volatile equity investments in its asset management unit.

This resurgence reflects broader trends: an improving IPO calendar, elevated trading volumes in commodities and equities, and a surge in cross-border deals. As stated by Bank of America's CEO, Brian Moynihan, markets revenue is expected to grow between high single-digit percentages and 10%, further reinforcing the sector's momentum.

High Interest Rates and Net Interest Margin Compression

While investment banking provided a tailwind, high interest rates continued to weigh on profitability through net interest margin (NIM) compression. The Federal Reserve's December 2025 rate cut of 0.25% signaled a cautious approach to easing, but banks still grappled with persistently high deposit costs and slowing economic growth. For example, JPMorgan's net interest income (NII) exceeded estimates despite a year-over-year decline, highlighting the difficulty of sustaining margins in a high-rate environment.

However, strong loan growth has partially offset these pressures. Aggregate loan growth at U.S. banks reached a three-year high in Q2 2025, suggesting resilient demand for credit. Wells Fargo, which lifted its asset cap in 2025, reported a 17.5% rise in EPS, driven by higher NII and strategic expansion. This dynamic illustrates how banks are leveraging credit demand to buffer margin compression, though regional institutions remain more vulnerable due to limited non-interest income streams.

Regulatory Tailwinds and Basel III Reforms

Regulatory developments in 2025 further shaped the earnings landscape. Federal regulators, including Fed Vice Chair Michelle Bowman, prioritized streamlining capital requirements and reducing burdens on smaller banks. Revisions to Basel III's Endgame framework and the scaling back of "gold plating" measures-excessively stringent capital buffers- freed up trillions in excess capital for lending or shareholder returns. These changes, while primarily aimed at community banks, indirectly benefited larger institutions by fostering a more competitive lending environment.

Yet, regulatory uncertainty persists. The implementation of Basel III has introduced market distortions due to inconsistent interpretations across jurisdictions. Additionally, banks must now navigate heightened supervisory focus on operational resilience, cybersecurity, and non-financial risks-a costly but necessary adaptation.

Balancing Risks and Opportunities

The 2025 earnings season reveals a sector adept at navigating complexity. Strong investment banking performance and loan growth have offset NIM pressures, while regulatory reforms have eased capital constraints. However, future resilience will depend on the Fed's rate trajectory and the ability of banks to manage non-traditional risks.

For investors, the key takeaway is clear: U.S. megabanks are not merely surviving high-rate environments-they are leveraging them. Yet, as global trade tensions and geopolitical risks linger, the sustainability of this resilience will require continued innovation and prudence.