WASHINGTON — Bankers are used to a friendly relationship with Republicans in Washington, but a chaotic tariff rollout that's roiling bank stocks and inciting fears about a recession is putting the industry on edge.
"A part of me was expecting [the tariff scare] to go away by the weekend," said Chris Nichols, director of capital markets at SouthState, a roughly $46 billion institution based in Florida. "If it was just one thing to predict, that'd be great — but I actually don't, as a banker, understand the tariff strategy. If I knew the strategy, I could help predict something, but I don't — and I don't know how fast this administration is going to pivot."
Lack of clarity and the looming fear of a recession are core to the issue. Many bankers interviewed for this article said they spent the weekend talking to customers and are still figuring out what trade volatility would mean for their customers and their business lines.
"We were trying to talk to customers about drawing on some of their lines of credit to move forward to purchases before the tariffs hit," Nichols said. "We're largely out of time now."
Why are the bankers so quiet?
Bankers are beginning to express some nascent pushback against the
The Bank Policy Institute, a trade group representing large and regional banks, hosted a call on Sunday with executives from large banks, including JPMorgan and Bank of America, over growing alarm within the industry about the tariffs, multiple sources confirmed to American Banker (Sky News first reported the meeting).
JPMorgan Chase CEO
But it's trickier than ever to loudly criticize Trump, and despite the market turmoil and growing chances of a recession, the banking industry's public response has been mostly silent.
BPI, Independent Community Bankers of America, Consumer Bankers Association and the American Bankers Association declined to comment for this story. The Financial Services Forum did not respond to a request for comment.
"The bank lobby understands that sometimes you don't want to be public with your concerns," said Ian Katz, a managing director at Capital Alpha Partners. "They could be expressing concerns privately."
Trade groups in particular — compared to individual CEOs — are also balancing the interests of banks of varying sizes, geographical concentrations and that mostly serve different industries, making taking a risk and losing access to the Trump administration more complicated.
"There's no goodwill to be made by getting on TV and denouncing the actions," said Ed Groshans, director of financial services at Height Capital Markets. "What that would do would hurt access, and access is more important than making a point."
How bad is this, exactly?
The banking industry isn't directly impacted by tariffs in the same way that manufacturing or farming sectors might be, but banks' central roles in intermediation of capital mean that their fortunes tend to rise and fall with the broader economy. Actions as disruptive as last week's tariffs mean that the banking industry is in for heavy headwinds unless the administration negotiates significant deals.
Credit conditions overall would likely worsen under the tariffs. Given escalating tensions with China in particular, the effects will spread far beyond the manufacturers or any other company that does business with Chinese companies, and especially to banks and other companies that finance businesses across the country.
"What if you're the company in South Bend, Indiana that clears the snow from the factory parking lot? What if you're the chain of local auto shops?" said Margaret Tahyar, a partner at Davis Polk. "Those guys are relying on the small- and medium-sized banks that are in their community. So it's the same story that's over and over and over again: if we hit a recession, then people default on loans."
If the country goes into a recession — an outcome that as of now is not inevitable, depending on how other countries respond to the tariffs and how the economy fares in the coming weeks — the Federal Reserve would likely respond by lowering interest rates, putting banks in a rough spot.
"The combination for banks is the combination of interest rates going down — because if we have a recession then interest rates are going to go down — so that's pressure on net interest margin at the same time that you have increased credit risk," Tahyar said. "So right now everything depends on how long this lasts."
James Bullard, former St. Louis Fed president, said in an interview Monday morning that Trump's tariffs "has dramatically raised the risk of a Smoot-Hawley type outcome," referring to the Smoot-Hawley tariffs passed in 1930.
Those tariffs, put in place in the early days of the Great Depression, also preceded a spike in bank failures in the 1930s, particularly among agriculture-focused lenders serving economically undiversified areas.
While the American and global economies are vastly different than they were in 1930 — and banks are substantially better capitalized — institutions that serve industries negatively impacted by Trump's tariffs could still face similarly adverse effects.
"If you had a heavy concentration in automotive, for example — I'd watch the community banks in Detroit, and other areas like that — there are some banks very heavy into development and construction," Groshans said. "Those banks could be very much affected by the run up in the cost of construction raw materials."
John Buran, CEO of Flushing Financial, a roughly $10 billion institution in New York, said that he expects "secondary or tertiary effects" from the tariffs as customers run into difficulties.
"Commercial banks that already have a lot of activity in the development areas," Buran said. "Real estate development, for example, could expect a very significant increase in costs of materials, or even in problems with the supply chain."
What concerns him long-term, he said, is the degree to which a trade war could cause a recession.
"It could be a short recession, it could be a long recession — that's really the wild card for us," he said. "As for the positioning of banks vis-à-vis Washington, just be careful that you don't knock us over the cliff. The country can get past a certain level of disruption, but too much is going to cause a problem."
