Newsletter · · Ashutosh Agarwal

Deposit Costs Rise at Wells Fargo as Bank Margins Face New Pressure - Banks & the Rate-Cut Cycle - Week of September 25, 2026

Banks and rate-cut newsletter for the week of September 25, 2026. Independent analyst Chris Whalen says deposit costs at Wells Fargo and two regionals are rising after six quarters of decline, the first concrete sign the cost side of the margin is turning against banks ahead of Q3 earnings.

Banks & the Rate-Cut Cycle

Week of September 25, 2026: Deposit Costs Rise at Wells Fargo as Bank Margins Face New Pressure

"You had a couple of banks already, Wells Fargo, Fifth Third, a couple others, Huntington, all talking about the fact that their deposit rates are going up after six quarters of falling interest expense. That's a remarkable turn."

Chris Whalen, on The Julia La Roche Show

One line from a veteran bank analyst deserves more attention than it got, because it goes to the heart of how banks make money. Last week brought the noise: a Fed rate hike, a bank CEO walking back a promise, and the worst week for bank stocks in months. The signal this fortnight is quieter, but arguably more important.

Here is the short version. For a year and a half, banks have been paying savers less and less. That quietly padded their profits. According to Chris Whalen, that trend has now flipped. At least a few banks, Wells Fargo among them, say what they pay on deposits is going back up. If that spreads, the most reliable support under bank earnings this year starts to wobble.

A note on sources. This issue covers a 14-day window back to September 11; episodes already covered last week are not repeated. The one genuinely new addition is a longer Bloomberg interview with Bank of America CEO Brian Moynihan from September 14, which adds context that last week's short clip did not have.

Two terms we use a lot. Net interest income (NII) is what a bank earns on its loans and bonds, minus what it pays depositors. Net interest margin (NIM) is that same gap, shown as a percentage. When deposit costs rise faster than loan yields, the margin gets squeezed.

TL;DR

  • Deposit costs are rising again. Independent bank analyst Chris Whalen says Wells Fargo, Fifth Third and Huntington have all flagged that their deposit rates are going up "after six quarters of falling interest expense." That is the first sign this cycle that the cost side of the margin is turning against banks.
  • Bank of America's warning looks softer in full context. In a longer Bloomberg interview, Moynihan said even a flat trading quarter would be "one of the best third quarters that we've ever had," and that the investment-banking "pipeline... is full." Deals are on pause because rates are moving, not because clients have disappeared.
  • The credit picture is split. Moynihan says his consumers spent "4% more money in August" and their "credit quality is very strong." Economist Danielle DiMartino Booth points to small-business bankruptcies "up 64% year over year" and rising household delinquencies. Q3 earnings start October 13 and should settle which view is right.

What's new

Ranked by how much each should matter to someone who owns bank stocks, not by date.

1. Deposit costs have stopped falling, and Wells Fargo is in the group

On The Julia La Roche Show, #410 Chris Whalen: Age of Uncertainty (September 19), Chris Whalen of Whalen Global Advisors (OPERATOR/INSIDER, independent bank analyst) made the most important bank-specific point of the week. He said Wells Fargo, Fifth Third and Huntington are "all talking about the fact that their deposit rates are going up after six quarters of falling interest expense." His verdict: "That's a remarkable turn. We're going to see more of that."

Why it matters. "Interest expense" is simply what a bank pays out to depositors and lenders. For six straight quarters that bill has been shrinking, which let banks keep more of what they earned on loans. Last week, Barclays analyst Jason Goldberg made the bull case: yes, deposit costs will rise as the Fed hikes, but loan and bond yields will rise faster. Whalen is saying the first half of that sentence has already arrived. The question for Q3 earnings is whether the second half shows up too. Asked what was behind it, Whalen said it "follows the bond market to some degree." The U.S. Treasury is "the single biggest borrower right now," and that pulls up the rate every bank has to offer to keep savers' money.

He also named what he sees as the bigger problem for bank stocks this year: uncertainty over inflation and the Fed. "Bank stocks have been pretty much dead this year," he said. "The top 25 are a group of banks you barely recognize. None of the large caps are in a leadership position right now." He compared it with last year, when "you could have bought most large cap banks and made double digits if you had stayed in the market all year." For what it is worth, Whalen said he still owns two bank positions, Schwab and Flagstar, and called the second "a turnaround situation."

2. Bank of America's CEO, in full: a pause in deals, not a collapse

Last week's big story was Brian Moynihan telling a conference that Bank of America's investment-banking fees were down 10% and trading would be flat. A longer interview on Bloomberg Talks, Bank of America CEO Brian Moynihan Talks Trading Revenue, AI Safety (September 14) fills in the rest. Moynihan (OPERATOR/INSIDER) framed "flat" as a problem of an unusually high starting point:

"If we end up with a quarter of what we just said flat, it'll be one of the best third quarters that we've ever had in the trading history of the company."

He put trading revenue at "$5 billion plus" and broke it down: "equities is up more and fixed income is bouncing around a little bit down and that ends up to flattish." On investment banking, he called "$1.6 to $1.8 billion" the "underlying flow of business" and "a good strong quarter," adding: "We haven't had a lot of $2 billion quarters. We had one last quarter, last year this quarter."

His explanation for the slowdown matters most for the rest of the group:

"Now the pipeline investment banking is full. The activity level is strong, but with rates moving up 100 basis points over a short period of time, people pause a little bit."

(A basis point is one-hundredth of a percentage point, so 100 basis points is a full 1%.) He said IPOs and follow-on share sales "we know we'll go through." The sticking point is debt deals. Companies need "a rate structure that's not bouncing around" before they will commit to borrowing.

Why it matters. This supports the gentler reading of last week's sell-off. The deals have not gone away; they are waiting for interest rates to settle down. If rates calm after the Fed meeting, Moynihan expects activity to "get back and grow from here." That is good news for the capital-markets businesses at JPMorgan and Citi too. It does not fix Bank of America's own problem, which was about credibility on costs. Moynihan also said the bank "deployed $400 million plus in AI capabilities this year" and plans to spend "more than that next year." That is a reminder that spending is not about to shrink.

3. Bank of America's house view: three hikes, and inflation stuck until 2027-28

In the same interview, Moynihan said his economists "had the Fed doing three rate increases for a long time now," to put "back in the interest rate cuts that were made." Even then, "we don't think inflation, even with three rate rises, would get down to where the target would be until then, 27 and 28." He also pushed back on the idea that this is a scary new world: "Everybody says higher. It's actually more normal," and "it was not normal from 2009 to 2019 to have zero rates."

Why it matters. When the CEO of the country's second-largest bank plans on higher rates for two more years, that tells you how his bank is likely to set deposit pricing, invest its bond portfolio and hold reserves. It also fits Whalen's point: if rates stay high, the fight for deposits stays expensive.

4. Credit: the banks say fine, the economists see cracks

Moynihan's view of the customer was upbeat: "Our consumers spent 4% more money in August than they did last August. Their credit quality is very strong. The small, medium-sized businesses are borrowing money." He named the place to watch, though: rate moves hit "the small, medium-sized line of credit users faster than they do the consumer because mortgages are fixed, cars are fixed."

That is exactly where others see trouble. On Soar Financially, Fed Hiking Campaign Could TANK Economy (September 21), Danielle DiMartino Booth of QI Research (PUNDIT, former Dallas Fed adviser) said: "Small business bankruptcy is being up 64 percent year over year... Personal bankruptcy is going up. Household delinquency is going up." She added that the 10-year Treasury yield went into the Fed decision at "4.94 percent" and "ended the day at 5.02 percent."

On Monetary Matters with Jack Farley (September 24), Henry Peabody of GMO (PUNDIT) said the pain will land on "those most susceptible," noting that "car loans are running north of 7% on used cars for high quality borrowers."

Why it matters. The banks' own numbers still look clean. The warnings are showing up first among small businesses and lower-income borrowers. Those are the loans that go bad first, and they flow into bank results a quarter or two later. Watch the Q3 commentary on small-business credit lines and card delinquencies (payments that are late).

5. Banks are losing ground to private credit, and the hike makes it worse

Peabody made a structural point that is easy to miss. When the Fed raises rates, banks respond sensibly: "The risk manager at a bank who has to think about capital they're holding against that, think about losses, has to decide, are we going to continue to deploy capital? Or are we going to widen our spread." Private-credit funds, the non-bank lenders that have grown fast in recent years, have not pulled back the same way. Asked directly whether banks tighten when the Fed hikes while private lenders don't, Peabody said: "They haven't thus far... in a bank system, it's a much more linear relationship."

Why it matters. Each hike can hand a little more of the best corporate lending to non-banks. That caps loan growth at banks just when they need it to offset rising deposit costs. DiMartino Booth made a related complaint: private equity and private-credit firms "are getting more funding from the conventional banking system and buying each other's companies." In other words, banks are increasingly lending to the lenders rather than to businesses directly.

The debate

Bull NII case: the lag still favors banks. Big banks are still asset-sensitive: their loans and bonds reprice upward faster than their funding costs over time. Last week's argument from Barclays' Jason Goldberg still holds. Assets "reprice quicker, which is actually constructive for net interest margins." Moynihan's comments add fuel. Three hikes mean more repricing to come, and a "more normal" rate world is one banks were built for. The bond portfolios help too. On The Banker Next Door, Banking industry update (September 11), host Dr. Joseph Bergquist (PUNDIT, banking educator), citing S&P Global data, noted that industry-wide unrealized bond losses, known as AOCI, have been "basically cut in half" from "negative $337 billion in the third quarter of 2023" to "negative $156 billion" in Q2 2026. As those older, low-yielding bonds mature, banks reinvest at today's much higher yields. That is steady, built-in income growth.

Bear NIM case: the costs arrived first. The bear case no longer needs to be theoretical. Whalen says deposit costs at Wells Fargo, Fifth Third and Huntington are already rising after six quarters of decline. Meanwhile the yield curve (the gap between short-term and long-term rates) flattened after the hike. That means the long-term rates banks lend at are not keeping up with the short-term rates they pay. Wellington strategist Mike Medeiros (PUNDIT), on The Wall Street Skinny (September 18), agreed with the host that a flatter curve is "not so great for banks." He added: "banks are one of the most sensitive assets to nominal growth. And so if expectations about nominal growth are going down, that should be reflected in banks." Add loan demand drifting to private credit and a squeeze on small-business borrowers, and the margin could get pinched from both sides. Even the AOCI good news has a catch. Bergquist noted that AOCI fell another "$4.15 billion in the second quarter," its "second consecutive period with a drop," as the 30-year Treasury yield hit "5.31% on August 17th, the highest rate since 2007."

The bull case says banks will earn more on loans before they pay more on deposits. This week's most useful sentence says the deposit side may already be moving.

Where we come out. The bull case is still the base case for the money-center banks, whose deposits are cheapest and stickiest. The bear case now has a real data point, and it lands hardest on regional banks. Q3 deposit costs are the number to watch.

Stocks in play

JPMorgan (JPM). No new podcasts on JPM this week. Bull: last week's comments from co-president Doug Petno (Q3 investment-banking and trading fees up "mid to high teens") still stand. Moynihan's "pipeline... is full" suggests the slowdown is a timing issue across the industry, which helps the biggest deal franchise most. Bear: if the flatter curve and rising deposit costs spread, even JPMorgan's lending margin comes under pressure, and its stock has held up better than peers, so there is less room for disappointment. Next catalyst: Q3 results on October 13, before the open. That is the first real test of whether "mid to high teens" held up through a slow September.

Bank of America (BAC). Bull: the full Bloomberg interview makes last week's sell-off look overdone. "Flat" trading is "$5 billion plus," which Moynihan called one of the best third quarters in the bank's history. The deal pipeline is "full," and consumer credit is "very strong." And a bank planning for three hikes has the most interest-income upside among the big four. Bear: nothing in the interview repaired the real damage, which was trust on costs after the July promise was walked back. Plus $400 million-plus of AI spending, growing next year, pushes against cost discipline. Next catalyst: Q3 results on October 14, before the open. Expenses versus the $18.6 billion Moynihan flagged are the number that matters.

Wells Fargo (WFC). Bull: Wells has the least exposure of the four to the deal slowdown, and CEO Charlie Scharf's raised profitability target (17-18% return, noted two weeks ago) was built for a higher-rate world. Bear: Wells is the bank Whalen named first among those reporting deposit rates "going up after six quarters of falling interest expense." For a bank that earns most of its money from the lending margin, that is the most direct negative in this week's podcasts. Next catalyst: Q3 results on October 13. Look for what management says about deposit costs and whether the rise is a blip or a trend.

Citigroup (C). No new podcasts on Citi this week. Bull: Moynihan's point that deals are delayed, not dead, is the best argument for Citi's trading and banking desks, and the stock's cheap valuation leaves room for a positive surprise. Bear: Citi was among the names dragged down by last week's fee warning, and if the "pause" Moynihan described lasts through year-end, Citi feels it in both fees and lending. Next catalyst: Q3 results on October 13. The key question is whether returns keep improving despite a slower September.

Read-throughs

  • Super-regionals (USB, PNC, TFC). No podcast this week discussed U.S. Bancorp, PNC or Truist by name. The read-across is still direct. Two of the three banks Whalen named, Fifth Third and Huntington, are Midwest regionals that compete for the same customers as these three. If their deposit costs are rising, USB, PNC and Truist likely face the same pressure. These banks also rely more on the lending margin than JPMorgan or Citi do, so they have less fee income to cushion it. They report October 15 (USB, PNC) and October 16 (TFC), right after the big banks, so the big-bank calls will set expectations.
  • Deposit competition. This is the headline read-through. Whalen says the rate banks must pay to keep deposits "follows the bond market," and with the 10-year near 5%, savers have attractive alternatives. On Moody's Talks, Inside Economics, Hikes and Haircuts (September 18), Mark Zandi of Moody's Analytics (PUNDIT) summed up the backdrop: "the bond yields are now up to 5%. The fixed mortgage rate is over 7%." He said he "would have argued to keep them the same" rather than hike. Expect the smaller banks with less sticky deposits to feel this first.
  • Capital-markets fees (deal pipeline, trading). Moynihan's "pipeline... is full" is the most useful sign for the group. IPOs and follow-on offerings are queued, and the delay is mainly in debt deals, which need calmer rates. Whalen was more cautious: banks are "warning on the capital market side. They're not going to make as much money on trading and issuance and advisory activities." Peabody noted one strong spot: he "saw a forecast that investment grade supply is supposed to be about $200 billion higher over the next quarter than it was last year," driven by AI-related borrowing. That is fee income for the banks that underwrite it.
  • CRE and consumer credit. No podcast this week offered new commercial real estate numbers for these banks. On consumers, it is Moynihan's "credit quality is very strong" against DiMartino Booth's small-business bankruptcies "up 64 percent" and rising household delinquencies. Peabody's point about used-car loans above 7% even for strong borrowers shows where stress builds first. Industry-wide, Bergquist's data showed only five small bank failures in 2026 and the FDIC "problem bank list" down to 47, "the lowest period that we've seen since going back to the third quarter of 2023." Stress so far is in borrowers, not in bank balance sheets.
  • Regulation, a quiet tailwind. Two podcasts pointed to a friendlier rule book. Medeiros called the regulatory backdrop "super positive in the short term" for bank stocks. On Closing Bell Overtime, Markets Push Through the Anxiety 9/18/26 (September 18), economics writer Matt Peterson (PUNDIT) described a new Fed report blaming staff, not the regulatory framework, for Silicon Valley Bank's 2023 collapse. He called it "a ratification of the path that the Fed is already on under Michelle Bowman." Bergquist added that new bank charter applications have hit 33 so far this year, "already topping 2025's full-year total of 31." Bank mergers are slower, though: 98 deals so far in 2026 versus 186 in all of 2025.

What changed vs last week

Last Friday's issue, "The Fed hiked, and bank stocks got hammered," covered the Fed's first rate increase in three years and the split between Bank of America's Moynihan (fees down, trading flat) and JPMorgan's Petno (fees up "mid to high teens").

What's new: the cost side of the margin. Last week the deposit-cost story was a forecast; Goldberg said deposit costs would rise. This week Whalen says they already are rising at Wells Fargo and at least two regionals, ending a six-quarter decline. That is the first concrete support for the bear margin case this cycle.

What changed: the Bank of America story got more nuanced. The full Moynihan interview recasts "flat" trading as close to a record third quarter and describes a full deal pipeline held back by moving rates. It does not undo the credibility hit on costs, but it weakens the "peak trading" worry that dragged down the whole group.

What was confirmed: the damage. Closing Bell's Mike Santoli noted on September 18 that "banks had a very rough week down 5%, the BKX index," the index of large U.S. bank stocks.

What carried over: the higher-for-longer framework is intact and got stronger. Moynihan's bank now plans on three hikes and inflation above target into 2027-28. What is still missing is hard numbers from the banks themselves. Those arrive with Q3 results starting October 13.