Fed Rate Hold, 10 % APR Cap & JPMorgan Q4 Shake Up Banking Sector

The recent market pullback is rooted in weaker bank fundamentals. JPMorgan — a bellwether — underperformed expectations in Q4 2025 due to shrinking investment banking revenues and a significant expense from taking on Apple’s credit card portfolio. While adjusted earnings per share (excluding the one-time charge) beat estimates, the headline miss hit sentiment, pulling down financials broadly.

Concurrently, the administration’s proposal to cap credit card APRs at 10% — though not yet binding — introduces regulatory risk to banks. For institutions earning average credit card APRs of ~20-22%, such a cap poses serious challenges to profitability, especially for issuers with large unsecured, subprime exposures. Modelled consequences include cuts in rewards programs, stricter underwriting, or even denial of credit to riskier borrowers.

Markets are now focused on several near-term events: bank-sector earnings (Bank of America, Citigroup, Wells Fargo) will shed light on whether JPMorgan’s experience is isolated or systemic; Producer Price Index data for December may test inflation pressures; and the Fed meeting late in January is seen by traders with a ~95% probability of no rate change. These events will help clarify how tight monetary policy and regulatory shifts will impact bank margins and risk.

Strategic implications for investors and banks include: banks may seek to diversify revenue away from investment banking and high APR unsecured credit; risk of credit contraction or premium pricing for lower credit tiers; regulatory influence may increase, especially alongside claims of consumer protection; increased importance of transparency and stress-testing under shifting policy regimes; and potential shifts in the competitive landscape if regulatory burden hits smaller issuers harder.

Open questions that remain critical:

• Can the proposed 10% cap be enacted legally (Congress vs executive order), and if so, under what terms (duration, enforcement)?
• Will banks respond mainly by cutting credit access, rewards, increasing fees, or tightening standards — and how will consumers and small businesses be affected?
• To what extent will credit delinquencies and loss provisioning rise, especially given banks are already setting reserves (as with JPMorgan’s Apple Card acquisition)?
• Will political pressure compromise central bank independence, particularly amid scrutiny over the Fed chair, and how might that affect inflation expectations and risk premia?