Major U.S. banking institutions reported a substantial increase in fourth-quarter profits, primarily driven by sustained growth in borrower demand, indicating a robust U.S. economic climate and pointing to an optimistic profit outlook for lenders.

Data released by Bank of America (BAC.US) on Wednesday showed its average loan volume grew 8% year-over-year, while net interest income—the difference between loan revenue and deposit costs—soared to a record $15.9 billion. Its rival JPMorgan Chase (JPM.US) reported a 9% increase in average loans.

Investors widely view loan growth as a positive indicator for banking operations and a reflection of overall economic strength. Bank of America's CFO, Alastair Borthwick, told reporters on an earnings call, "We saw growth across all consumer loan categories. This helped us in the fourth quarter, but the broader narrative for 2025 revolves more around commercial lending... Our clients, operating in a growing economy, continue to invest to support their business development."

Borthwick stated that Bank of America anticipates loan growth will reach a mid-single-digit percentage rate in 2026. Despite the imposition of large-scale import tariffs, the U.S. economy and American consumers have demonstrated resilience, partly aided by the AI boom and interest rate cuts from the Federal Reserve, with markets anticipating two further rate cuts this year.

Analysts at S&P Global Market Intelligence wrote in a report released Tuesday, "They are optimistic about the momentum for continued economic growth in 2026, primarily benefiting from macroeconomic stability and a favorable lending environment." They estimate that loan growth across U.S. banks will "accelerate significantly" by the end of 2025, reaching 5.3% year-over-year.

Citigroup (C.US) reported Wednesday that its fourth-quarter average loan volume increased by 7%, driven by its markets, U.S. personal banking, and services divisions. Wells Fargo (WFC.US) CFO Mike Santomassimo told reporters on a call, "We are seeing an acceleration in loan growth for the first time in a while."

In the fourth quarter, Wells Fargo's commercial loans grew by 12%, while related income also increased due to growth in auto loans and credit card lending. However, Santomassimo hinted at further job cuts after the bank set aside $612 million in Q4 for severance costs related to layoffs planned for this year. He added, "We still have opportunities to further streamline the company and improve efficiency."

Separately, a source familiar with the matter revealed that Citigroup plans to lay off approximately 1,000 employees this week. In a letter to staff on Wednesday, Citigroup CEO Jane Fraser stated that AI tools and automation are expected to transform roles within the bank and will "lead to an overall reduction in certain roles as headcount continues to decline."

Nevertheless, lenders face potential headwinds against a backdrop of escalating geopolitical tensions and rising policy uncertainty. While large banks anticipate capital relief measures from banking regulators, they could be affected by other policy proposals, including the President's unexpected suggestion last week to cap credit card interest rates at 10%.

Peter Torrente, U.S. Banking Leader at KPMG, said via email, "As banks seek growth in 2026, they will continue to closely monitor how to navigate a complex risk environment, including geopolitical tensions, economic volatility... and competition from non-bank institutions."

Executives expressed concern that a credit card rate cap would compel banks to constrict lending, thereby stifling economic growth. Fraser stated, "We do not support interest rate caps. The impact on us and other banks pales in comparison to the severe shock to credit access and national consumer spending. Such measures often backfire—consider the credit controls implemented during the Carter administration to curb costs. The effects were so severe they were rescinded within two months."

Citigroup CFO Mark Mason said it is too early to assess the potential impact given the lack of specific implementation details from the government. Echoing sentiments expressed by JPMorgan executives on Tuesday, Mason stated, "A rate cap would restrict credit access for those who need it most and, frankly, would adversely affect the economy." He added that, nonetheless, Citigroup remains willing to collaborate on addressing cost-of-living issues.

Santomassimo also told reporters that while specific details are lacking, a rate cap would negatively impact credit supply. However, some academics and analysts argue that banks could withstand lower rates given the profitability of their credit card businesses.

Influenced by concerns over the proposed rate cap and underperformance in other banking segments, the S&P 500 Banks Index declined on Wednesday. The index had risen 30% in 2025.

Following the Trump administration's investigation into Fed Chair Powell, more bankers voiced support for the Federal Reserve's independence, with the former President having repeatedly called for further rate cuts.

Bank of America CEO Brian Moynihan told media that the Fed's independence is an anchor for U.S. economic success. He said, "If you think about the U.S. economy, you think about the strength of the country, you think about how we lead the world in every dimension. A key part of that is having an independent Federal Reserve setting interest rates based on what it observes."

On Tuesday, JPMorgan Chase CEO Jamie Dimon warned that political interference with the world's most critical central bank would raise inflation expectations and could lead to higher interest rates over time. Mason stated on Wednesday, "What truly matters is the independence of the Fed and its Chair. We hope the next Fed Chair will maintain the same independence and focus on ensuring the Fed's autonomy."