Posted on 10/16/2025 5:57:36 PM PDT by lasereye
Regional bank stocks tumbled on Thursday after Zions Bancorp said it would write off fraudulent loans made to two borrowers, adding to investors’ fears about lending standards and stress in credit markets.
Zions Bancorp (ZION) on Thursday said it had recently identified “what it believes to be apparent misrepresentations and contractual defaults” by two borrowers. As a result, it plans to write off $50 million of the $60 million outstanding on the affected loans.
Shares of Zions dropped 13% on Thursday, leading regional banks lower. The KBW Regional Banking Index fell 6%.
The recent bankruptcies of two companies in the auto sector—car dealer Tricolor and auto parts maker First Brands—have cast a spotlight on potential credit market risks. Tricolor is alleged to have fraudulently pledged risky subprime loan portfolios to multiple creditors, while First Brands was allegedly borrowing against invoices to mask the true size of its debt.
Regional lender Fifth Third Bancorp (FTB), in a regulatory filing in early September, said it would take a $170 million charge related to the collapse of subprime auto lender Tricolor.
JPMorganChase (JPM) also wrote off $170 million in Tricolor-related loans in the third quarter.
And Raistone, which facilitates short-term business loans, has said $2.3 billion has “simply vanished” as a result of First Brands’ failure.
The dual bankruptcies have some on Wall Street worried that more credit losses are in the offing. “I probably shouldn’t say this, but when you see one cockroach, there are probably more,” said JPMorgan CEO Jamie Dimon on Tuesday following the release of a better-than-expected earnings report from the banking giant.
"I expect it to be a little bit worse than other people expect it to be," Dimon added, noting that private credit underwriting standards "may not be as good as you think."
Zions’ filing on Thursday added to mounting concerns about transparency in the banking system, especially around lending to non-depositary financial institutions (NDFIs), sometimes referred to as non-bank financial institutions. NDFIs—a category that includes hedge funds, insurers, and lenders of mortgages and consumer loans—offer financial services but do not take deposits, and thus don’t qualify as a bank and are not regulated as such.
Bank lending to NDFIs has exploded in the last decade. Since the financial crisis of 2008-2009, bank loans to NDFIs have grown at nearly three times the rate of the next-fastest growing loan category, according to the Federal Deposit Insurance Corporation’s 2025 risk review.
NDFI lending poses a unique risk to banks. “It can be particularly difficult for banks to assess the credit decisions and management of loans originated by private credit firms,” according to the FDIC. In addition, “loans originated outside the banking system are not subject to the same safety and soundness standards as bank loans, which could lead to higher-risk lending across the financial system.”
Tariffs pushing up car prices isn't helping the auto loan situation either. A lot of car buyers are said to be struggling to pay them off.
It's not that hard to do.
The Biden COVID shutdowns seem to have had a goal of eliminating small and medium sized businesses. It likely caused losses that these companies have not been able to recover from. And regional banks provide the majority of loans for small and mid sized businesses.
The problem is not interest rates and the problem is not tariffs. The problem is bad loan underwriting practices and too much across the board debt. The entire world is over leveraged, and that includes you. But not me. Because I have no debt, and I don’t plan on getting any debt.
“Passbook” savings accounts should be paying 3% + Inflation.
Commercial real estate. There are LOT of office buildings that aren’t fully occupied and never will be again.
Oh-Bummer's cash for clunkers took a lot of good older cars off the road. It is hard to find a car from the late 80s or early 90s.
As a matter of policy, under the Biden administration, banks were pressured to lend to subprime borrowers. That rarely ends well.
My regional bank, US Bank, has done great this century. It has avoided government pressures so far. It currently yields 4.5% and I plan to buy more.
Well, I do have a mortgage though, but it's much smaller than most folks. I'm living alone in an 8-bed house, though, and I'm looking at (carefully) renting a couple of rooms out month-to-month to cover the mortgage, insurance and property taxes until it's paid off. (Anybody want to live in Mayberry? :) )
Agreed. And part of the problem is DEI lower lending standards (ie Tricolor):
I was a lawyer for several years for a major state banking regulator. Banking is the kind of business that reliably rewards a careful, dull, mind your knitting approach. Every now and then though, due to political manipulation, business fads, fraud, kickbacks, and other corruption, that lesson is ignored, credit standards are weakened, and accounting rules are bent. Then hammers like me get called on to clean up the mess. Unfortunately, most of the crooks escape while ordinary borrowers, shareholders, and taxpayers get stuck with the losses.
What do these new tariffs have to do with “struggling to pay them off?” Did tariffs make loans from before Trump have higher balances than what these car buyers expected?
Any car buyer since exactly knew what the final price of their car was, including tariff costs. They chose that monthly payment, happy for it.
I am “struggling” to understand how you or others are saying “struggling to pay them off” when these car loans may only have had one to four months of any sort of tariff cost add-on on their brand new loans, and, if so, they took loans for what European or Japanese car they bought, knowing that cost with tariffs.
to coin the phrase,
if you default to the bank $100 it’s a tradegy
if you default $100,000,000 it’s a statistic
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If you owe $100K to the bank and you can’t pay it back, you have a problem.
If you owe $100M to the bank and you can’t pay it back, the bank has a problem.
That’s pretty quick or tariffs put in place a few months ago to be causing auto loan defaults already.
The problem is with subprime auto loans and maybe with people that overpaid for vehicles during the Covid shortage.
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