The year 2025 is shaping up to be a crucial period for the U.S. economy and banking sector, characterized by moderate growth but with significant uncertainties. A recent report assesses the current situation of Bank of America Corp (NYSE: BAC ) (BoA) and the general outlook for the sector, with particular attention to existing vulnerabilities and the probability of a financial crisis. While the banking system generally demonstrates considerable resilience, specific challenges persist that warrant detailed analysis.
Bank of America: Strength and Proactive Strategy
Bank of America, a leading financial institution, shows a picture of strength in this complex environment. In the first quarter of 2025, BoA reported net income of $7.4 billion, a significant increase from $6.7 billion in the prior year. Its revenue, net of interest expense, reached $27.4 billion, growing 6% year-over-year, and net interest income increased by 3%, reaching $14.4 billion. Diluted earnings per share stood at $0.90.
Bank of America CEO Brian Moynihan has expressed a slightly more optimistic tone regarding the U.S. economy. Although he acknowledges macroeconomic risks, including tariffs, he does not foresee a recession in 2025, emphasizing that the economy remains on a solid footing.
Regarding the loan portfolio, average commercial loan balances were $602.2 billion in the first quarter of 2025, while consumer loans averaged $457.9 billion. BoA’s deposit base remains relatively stable; while median balances have decreased since 2021, as of March 2025 they were still at least 40% above 2019 levels in nominal terms and 15% above inflation-adjusted levels. The rate of deposit decline has slowed significantly.
Bank of America has also actively addressed the commercial real estate (CRE) market, cautiously re-engaging in key lending markets like CRE from a position of strength. The institution sees "positive momentum" in CRE, with growing investor confidence and stabilizing valuations. Large banks, including BoA, have selectively reactivated lending on commercial properties after years of balance sheet clean-up. Scale, diversified revenue streams (mentioned in 11), and proactive balance sheet management appear to place BoA in a stronger position than many smaller or regional banks when facing CRE challenges. This selective re-engagement suggests they are capitalizing on opportunities where others may be retreating.
However, BoA’s internal data also reveals subtle warning signs in consumer health, with spending growth slowing across all income groups and an acceleration in higher-income households receiving unemployment payments. Early-stage (30-day) credit card delinquencies, while having decreased in recent months, were slightly up year-over-year in March 2025. This data suggests a gradual erosion of consumer financial buffers, which could translate into higher future delinquencies, especially if inflation persists (as BofA Global Research anticipates due to tariffs) or the labor market weakens.
Vulnerabilities and Risks in the U.S. Banking Sector
Despite the overall resilience of the U.S. banking industry in 2024, with increased net income, favorable asset quality, and growing capital, areas of vulnerability persist.
The commercial real estate (CRE) market remains a central concern. An estimated 20% ($957 billion) of outstanding commercial mortgages are set to mature in 2025. Loans for office properties (24% of maturities) and hotels/motels (35% of maturities) have the highest maturity rates in 2025. The convergence of this "maturity wall" with high interest rates makes refinancing difficult. Furthermore, a substantial number of banks (1,788 of all sizes and 59 of the largest 158) have total CRE exposures exceeding 300% of total equity capital, a regulatory threshold of concern. CRE conditions varied in 2024, with office properties underperforming due to high vacancy rates and slow rent growth. Problem debt restructurings for CRE mortgages tripled in the fourth quarter of 2024 compared to 2023. While larger banks may have stabilized or provisioned, the concentration of risk in smaller banks suggests that CRE-driven stress is more likely to result in isolated failures or regional challenges rather than a widespread systemic crisis.
Beyond CRE, other loan portfolios also present risks. Consumer credit quality is expected to gradually deteriorate as consumers face financial difficulties, with auto and credit card loan delinquency rates remaining above pre-pandemic levels. This is a gradual deterioration, driven by persistent inflation and potential softer real wage growth. This could lead to incremental but sustained losses for banks.
Lending to Nonbank Financial Institutions (NDFIs) and private credit represent an emerging risk due to their rapid growth, concentration in large banks, and opacity. Concerns exist regarding potentially looser underwriting standards in these segments. The opacity of the private credit market makes precise risk measurement difficult, presenting a potential blind spot for systemic risk.
The high interest rate environment continues to impact bank profitability. The industry’s net interest margin (NIM) decreased in 2024. Furthermore, banks continue to report sizeable unrealized losses on securities portfolios due to elevated long-term rates, which represent a drag on future earnings. The persistence of these rates implies a slow unwinding of these losses, extending the period of reduced profitability for some banks.
Financial Stability and Probability of Crisis
Assessing a systemic crisis in the U.S. in 2025 involves considering economic forecasts and the resilience of the banking system.
Views on the probability of a U.S. recession in 2025 are mixed and heavily influenced by the trajectory of trade policy. J.P. Morgan Research reduced its probability to below 50%, citing de-escalating trade tensions. In contrast, the IMF revised down its growth forecast and raised the recession probability to 40%, citing tariff concerns. The American Bankers Association’s (ABA) Economic Advisory Committee puts the recession risk at 30% but warns it could increase depending on trade policy. This divergence underscores that tariff policy is a critical, high-impact variable. Other factors like elevated federal budget deficits and persistent inflation also influence recession risk.
Despite these economic uncertainties and sectoral vulnerabilities, the probability of a widespread systemic banking crisis, akin to 2008, is considered low. The U.S. banking system exhibits considerable resilience, supported by high levels of regulatory capital, stable liquidity, and a robust regulatory framework. Overall asset quality metrics remained favorable in 2024. The FDIC’s Deposit Insurance Fund (DIF) reserve ratio increased, indicating a solid financial cushion. The history of FDIC deposit insurance shows that no depositor has lost insured funds since 1934.
The post-2007-09 crisis regulatory framework, including higher capital and liquidity requirements, and a stress testing regime, acts as a powerful containment mechanism against widespread bank runs and systemic collapses.
The implementation of Basel III Endgame reforms, although designed to strengthen stability by requiring larger banks to hold more capital, has generated debate. Critics argue it could negatively impact U.S. GDP growth, increase costs for consumers and businesses, and reduce returns for bank shareholders. This situation reveals a tension between regulatory intent (stability) and economic impact.
Key Takeaways
Bank of America shows operational and strategic strength in the first quarter of 2025, navigating the environment with a cautious yet optimistic outlook. The U.S. banking sector as a whole is resilient due to its capital, liquidity, and regulation.
However, vulnerabilities persist, primarily in the commercial real estate market (especially office properties), the gradual deterioration of consumer credit, and the emerging risks from NDFI/private credit lending. Unrealized losses on securities portfolios continue to weigh on profitability.
Despite economic uncertainties, the probability of a widespread systemic crisis is low due to the robust post-2008 regulatory framework. However, localized stresses or individual bank failures are plausible, particularly among institutions with high exposure to specific risk segments like CRE.
The implementation of Basel III Endgame, while aiming to enhance stability, could introduce economic frictions. Banks will operate in an environment of interest rate uncertainty and potential macroeconomic headwinds, with prudent risk management, particularly in CRE and consumer lending, being crucial. The system’s resilience will depend on its ability to manage these specific vulnerabilities and adapt, supported by vigilant regulatory oversight.