Banks may not pay tariffs, but they’ll still threaten the banking industry

The news: Tariffs won’t hit banks directly, since they don’t trade goods—but the broader economic impact will affect them significantly, according to The Wall Street Journal.

What banks should expect: Should the US fail to reverse course soon, financial institutions (FIs) face a multi-pronged threat.

• Experts are warning of the rising probability of a recession.
• Consumers and businesses will reduce their borrowing in response, and their defaults will also rise.
• Downward pressures on interest rates will further squeeze banks’ tightening profit margins.
• When businesses feel economic pressures, they’re less likely to participate in mergers and acquisitions (and have less ability to do so), which will reduce another source of revenue for FIs.

Industry reactions: Morgan Stanley analysts reduced their outlook on both large and midsize US banks from “attractive” to “in-line,” per Bloomberg. They cited recession risks that extended beyond FIs themselves, and also lowered Morgan Stanley’s view on financial advisors and consumer finance stocks.

And while JPMorgan CEO Jamie Dimon was initially optimistic about tariffs and their ability to boost US manufacturing, he’s since changed his tune—likely because the tariffs are much more severe than anyone imagined, per CNN.

In his annual letter to shareholders, Dimon expressed concern about “damaging trade practices,” US isolationism, and the “greater probability of a recession.”

How should banks respond? Beyond lobbying for policies that send less of a shock through the financial sector, FIs can:

• Reinforce client relationships with personalized guidance and support for consumers and businesses navigating economic uncertainty.
• Recalibrate products for a cautious consumer with low-risk, value-driven products—such as high-yield savings accounts, secured credit cards, and flexible personal loans—to attract depositors and retain wary borrowers.
• Lean into digital convenience by expanding digital self-service tools, refining mobile features, and offering real-time financial wellness insights that help customers navigate tough times.

Improve personalization with package offerings around specific life stages or needs—like inflation-ready checking accounts or recession-resilient investment options—to better connect with customers navigating uncertainty.

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