How tariff uncertainty is taking a toll on banks

At the start of the year, the mood across the banking industry was largely positive. The economy was on solid footing, interest rates were poised to decline further, and Donald Trump, whose first term featured big tax cuts and looser regulation, was about to return to the White House.

But the first 100 days of the second Trump administration — and in particular the escalation of a global trade war that could push the United States into a recession — have unleashed a new level of uncertainty on the industry. Trump’s tariffs, especially those announced on April 2, didn’t impact banks’ first-quarter results, but they could have ramifications for the rest of the year.

A report by S&P Global Market Intelligence warned of potential consequences, including slower growth, higher delinquencies, reduced investment activity and “modest” earnings pressure. The barrage of tariffs “will serve as an overhang on the economy,”, according to the report. As a result, U.S. bank earnings could decline 2% year over year, S&P predicted.

At the moment, banks are trying to figure out what’s next. The picture has been, at best, murky.

That uncertainty was a common theme this month during first-quarter earnings calls, which revolved not around the companies’ actual performances during the first three months of the year, but rather on how tariffs and a trade war could impact everything from loan growth to dealmaking to the prospect of global banks losing business in other countries.

If financial conditions tighten, some banks may need to worry about lines of business that could be constricted, such as trade finance, as well as certain trading functions, according to Clay Lowery, executive vice president of research and policy at the Institute of International Finance.

Some economists have argued that while tariff policies may put pressure on the economy, the long-term results will be worth the pain, Lowery told American Banker. “How much pain is that?'” he wondered.

To be sure, U.S. banks on the whole remained very well-capitalized through the first quarter, and therefore should be able to withstand any financial shocks that may come later this year. Several bank CEOs expressed optimism about the need for their services even amid macro-economic uncertainty, while at the same time saying it’s a wait-and-see situation.

“Having access to a global collateral that lets your business operate more effectively, maintaining your access to the rails of the financial system — those are very, very core significant things,” Robin Vince, president and CEO of Bank of New York Mellon, said earlier this month. “And so I’d like to think the combination of the trust, the reputation and then the day-to-day operation will cause our clients to continue to see value with us. But obviously, that’s something that we’ll have to see how it evolves.”

What follows is a look at three aspects of the banking business that could be negatively impacted by a trade war.

Trade finance

Banks with trade finance businesses are bound to see disruptions, as companies buy fewer imports, according to Matthew Bornfreund, a regulation attorney at Troutman Pepper Locke. In general, trade finance provides tools and services, including letters of credit and export and import loans, to help companies navigate international trade and commerce.

Trump has imposed baseline 10% tariffs on most imports and a 145% tariff on Chinese goods. He paused tariffs against certain countries for 90 days to allow time for negotiations. Critics have argued that the tariffs will lead to higher prices for U.S. businesses and consumers.

Bornfreund said banks with trade finance operations are already feeling the impacts from the tariff-related uncertainty.

“It’s big business for banks on either side, in verifying shipments and verifying funds, and that’s already starting to see some effects,” Bornfreund said. “There’s just less of that, a reduction in that business … they make more money the more shipments there are.”

Some banks may be trying to figure out how to fill the revenue gap, if the high tariffs persist.

“If you’re a bank that thinks this is six to nine months of unsettled times, and things will find a new equilibrium, then you just ride it out, and eventually patterns of trade will stabilize,” Bornfreund said. “But if you think this is the new world for years on end, then yeah, you have to start thinking about other areas of operations that are more profitable.”

Loan demand

Loan growth had been soft heading into 2025, but there was widespread hope that the Federal Reserve’s three interest-rate cuts in 2024 and the potential for more this year could help fuel a pickup.

But loan demand could dwindle if tariffs persist, and the economy, either in the U.S. or globally, enters into a recession. According to S&P Global Market Intelligence, “the emergence of tariffs not seen in 100 years is likely to have a chilling effect on business activity in the near term, even if the trade policies do not remain in place for a prolonged period of time.” As a result, loan growth is likely to “remain relatively weak,” S&P concluded.

Still, the disruption of global trade patterns could mean opportunities for banks to finance solutions that arise from the tariffs, especially once new baselines for growth expectations are established, said Pierre Buehler, managing director in the financial services practice of consulting firm SSA.

“Trading is here to stay,” he said.

Global operations

U.S. banks with large international operations could feel a trade war’s impact most acutely — if clients in overseas markets prefer to do business with non-American banks. JPMorgan Chase , Citigroup , Goldman Sachs and Morgan Stanley have extensive operations in other countries, and all would be stung by a reconfiguration of the global banking landscape.

“Just how will regions outside of the U.S. perceive U.S. businesses in their country?” said Brendan Browne, managing director of financial institutions at S&P Global Ratings.

Jamie Dimon, CEO of JPMorgan Chase, didn’t try to downplay the risks during the bank’s first-quarter earnings call. JPMorgan serves businesses and individuals in 100 countries.

“I honestly add that to the list of worries,” Dimon told analysts in response to a question about being an international company during a potential trade war. “We will be in the crosshairs. That’s what’s going to happen, and it’s OK.”

Al Drago/Bloomberg

Dimon noted that JPMorgan is “deeply embedded” in other countries, but he also acknowledged the downside risks from a trade war. “I do think some clients or some countries will feel differently about American banks, and we’ll just have to deal with that,” he said.

Citigroup, which operates in 180 countries and has a physical presence in 95 of them, is experienced in navigating geopolitical tensions, supply chain shifts and other disruptions, CEO Jane Fraser said this month. The megabank also has “a very strong balance sheet, capital and liquidity to deploy,” she said.

In times of uncertainty, customers seek out Citi as their “port in the storm,” Fraser added.

“We are where the clients come” for a variety of services, such as hedging for foreign exchange, interest rates, commodities and financing, she said. “We are the active agent in a lot of this mix.”

It’s critical to recognize how deeply entrenched certain large U.S. banks are in other countries, said Mike Mayo, an analyst at Wells Fargo Securities. Clients often turn to the banks for advice and intermediation, especially in times of turmoil, Mayo told American Banker.

“They’re part of the plumbing,” said Mayo, who covers big banks. “It’s not so easy to disengage from them.”

Still, a prolonged period of uncertainty isn’t good for anybody, Mayo warned.

“If we get to the second-quarter earnings season, and we’re having the same discussions about how much, who and when tariffs are going to hit, that could cause paralysis with policy and a vicious cycle of reduced activity, lower market values. Wash, rinse and repeat,” he said.

Don’t expect big banks to halt their activities in other countries, but the turmoil could affect their revenue, Browne cautioned. “”And that could take a while to play out,” he said.