Back in 2022, the US central bank – the Federal Reserve – began raising interest rates quickly to fight inflation. Rates went from nearly 0% to over 5% in just over a year. At first, this was great news for big American banks like JPMorgan, Bank of America, Citigroup, and Wells Fargo. Why? Because when loan rates go up faster than the rates banks pay on deposits, the gap between the two – called the net interest margin (NIM) – gets wider. That means more profit every time they lend money.
This jump in NIM led to a surge in what’s known as net interest income (NII) – essentially the money banks earn from lending minus what they pay to depositors. In 2023, this helped the big four banks post record profits.
But by 2025, that early advantage is wearing off. The same high rates that helped banks are now starting to hurt them. Deposit costs are catching up, fewer people and businesses are taking out loans, and old investments in low-interest bonds are now worth much less. For banks, the “easy money” phase is clearly over.
What’s Happening to Margins?
When rates first jumped, banks were able to earn more from borrowers without having to raise what they paid depositors. At the peak in early 2023, the big four had an average NIM of 2.52%, and they earned a combined $253 billion in interest income. JPMorgan alone brought in approx. $90 billion in 2023.
Fast-forward to 2025, and those margins are shrinking. The average NIM is now closer to 2.43%. Bank of America is struggling the most, down to just 1.99%, partly because it holds a lot of older bonds that pay very low interest. Wells Fargo still has the highest NIM (2.67%), thanks to smart deposit management and earlier limits on how fast it could grow.
Fewer Loans, More Expensive Deposits
People and businesses aren’t borrowing as much anymore – likely because loans are expensive right now. In early 2025, Bank of America still managed to grow its loan book by 6%, but JPMorgan only saw a 2% increase. Citigroup and Wells Fargo both reported slight declines in lending.
At the same time, banks are being forced to offer better interest rates to hold onto customer deposits. Many people are moving money into higher-yield options like money market funds or Treasury bills. That makes it more expensive for banks to keep customer funds – and eats into their profits.
Wells Fargo is in a better spot here. Because it wasn’t allowed to aggressively expand deposits in earlier years (due to a Fed restriction), it didn’t rely on high-cost savings to begin with. That’s helped it maintain relatively lower deposit expenses today.
Preparing for Potential Losses
With signs of a slowdown showing up in the broader economy, banks are setting aside more money as a buffer in case borrowers can’t repay their loans. These are called credit-loss provisions – a kind of safety net for themselves.
In Q1 2025:
- JPMorgan added $3.3 billion in provisions – its highest in five years
- Citigroup added $2.7 billion
- Bank of America added $1.5 billion
- Wells Fargo actually reduced its reserves slightly, after building them up earlier
So far, there’s no major default crisis – but banks are definitely being cautious, especially around credit cards and commercial real estate.
A Hidden Problem: Bond Losses
Back when interest rates were almost 0%, banks invested heavily in long-term bonds. Now that rates are much higher, the value of those older bonds has dropped sharply – a situation known as unrealized losses. These aren’t losses banks have to report in earnings yet (unless they sell the bonds), but they still affect how much capital a bank has available to work with.
Bank of America is hit hardest here, sitting on more than $100 billion in unrealized losses. JPMorgan and Wells Fargo each have around $40 billion, while Citigroup’s figure is closer to $25 billion.
How Each Bank Is Coping
JPMorgan is in the strongest position overall. It has a wide range of income sources – from trading desks to wealth management – and isn’t overly reliant on lending alone. Its return on equity (ROE), a measure of profitability, stands around 18%, the highest of the group.
Bank of America is under more pressure. It still makes money (ROE ~12%) but rising deposit costs and those unrealized bond losses limit its options.
Wells Fargo is improving. With its deposit cap lifted, it’s starting to expand again. It has the highest margins, low deposit costs, and a cleaner balance sheet. ROE is around 11–12%.
Citigroup is in the middle of a long restructuring. It’s doing better – profits rose 21% YOY – but it still lags peers with an ROE of around 8–9%.
Final Thought
The boom period for US banks post-rate hikes has ended. What’s left is a tougher environment where profits are harder to earn and risks need closer attention. Among the big four, JPMorgan stands out for its strength and balance. Wells Fargo is improving quickly. Bank of America and Citigroup are managing through, but they’ll need strong execution to stay competitive.
In this new phase, it’s less about the interest rate advantage – and more about how well each bank plays its hand.