The U.S. economy may be in a relatively stable place at the moment, but in-depth studies and economic modeling by two of the country's largest banks reveal their own good times could quickly disappear if new tariffs remain in place.
Banks are mandated by federal regulations to conduct rigorous tests of their own finances to assess whether they hold enough capital to withstand a steep economic downturn. Chief executives at Bank of America and PNC Financial Services Group both said Tuesday those tests revealed that their banks have the capital needed to stand up to financial turmoil, but tariffs pose a significant threat to the economy.
“If you sit there and said, 'What happens if tariffs [cause this to happen],' or if this happens or this happens, it's going to result in either [gross domestic product] negative growth and higher inflation … higher unemployment,” Bank of America CEO Brian Moynihan said during a conference call. “All those are the factors we actually test in granular detail.”
The Trump administration’s implementation of tariffs and disputes with allies over trade deficits has roiled the stock market and led some economists to raise the odds of a recession this year. Banks aren’t subject to President Donald Trump’s decision to put tariffs on imported goods, but because banks are at the center of the economy, the banking sector will likely be impacted by a broad slowdown.
For the first three months of 2025, Bank of America and PNC each reported profit growth in the first quarter on a year-over-year basis and a reduction in their holdings of delinquent mortgages on commercial properties.
The tariff situation “has, without question, slowed down activity in the near-term as people try to figure this out,” Bill Demchak, CEO of Pittsburgh-based PNC, said during a conference call. “But it has not yet turned into any sort of credit deterioration.”
'You're not blinking'
Bank of America's profit growth led Mike Mayo, an analyst at Wells Fargo Securities, to ask the company to explain the discrepancy between its positive performance and the doomsday outlook.
“Loans are growing, deposits are growing, credit's fine,” Mayo said during the call. “I'm just trying to reconcile the $7 trillion of lost stock market wealth with comments from you that sound like you're not blinking.”
Mayo noted that other banks in addition to Bank of America have also seemed “upbeat.”
"What am I missing?" Mayo said. "At what point do you say, ‘Hey, wait a minute, this really might be a bigger problem.'"
Moynihan responded to Mayo that “everything you said is true: loans, deposits, credit are good, charge-offs went down, delinquencies are down.”
“Our economists, your economists are all predicting a slowdown,” Moynihan said. “The core question will be, [what will the outcome be] when all these different policies and stuff come together and the response to policies by our trading partners?"
The largest banks are required to conduct so-called financial stress tests on a routine basis. The tests are designed to show how the bank’s financial position would hold up under hypothetical situations, such as a deep recession or financial market crash.
Bank of America’s Moynihan said the Charlotte, North Carolina-based bank has conducted stress tests since the tariffs were implemented.
“We always are testing everything on a continuous basis … if you think about all the different ways the economy can get knocked into recession or potential recession or lower growth,” Moynihan said.
Those tests have shown that Bank of America itself would be able to withstand a financial crisis, Moynihan said. Demchak also said his bank is positioned to handle such economic turmoil.
“If [gross domestic product] falls off, or housing prices fall off, or unemployment levels rise … we want to make sure we are positioned at the end of the day that we could serve our clients well and not have to be pulling back,” Moynihan said.