U.S. bank profits climb as Whalen flags trading and mortgage risk

U.S. banks posted stronger second-quarter earnings in 2026, but Whalen Global Advisors says the gains are being fueled by faster-growing trading and securities lending activity that could add systemwide risk. The firm also warns bank-owned mortgage servicing rights may be overstated, creating a potential pressure point as credit conditions tighten.

Why it matters: - U.S. bank earnings are rising fast, but some of the strongest revenue sources are tied to markets and financing activities that can turn volatile. - Whalen Global Advisors says the mix of growth in trading, securities lending and mortgage servicing rights could increase risk across the financial system. - The findings point to possible pressure on banks, nonbank lenders and mortgage borrowers if credit conditions tighten.

What happened: - Quarterly bank net income rose to $90.1 billion in the second quarter of 2026, up $9.7 billion, or 12%, from the prior quarter. - Noninterest income increased $5.5 billion, or 6.1%, driven largely by higher trading revenue and fee income. - Whalen Global Advisors said part of the jump reflects the boom in AI stocks and related borrowing. - The IRA Bank Book Q3 2026 from Whalen Global Advisors LLC says margin lending and borrowing tied to securities transactions is accelerating.

The details: - Christopher Whalen said loans to non-bank financial firms such as private credit sponsors have accounted for a large share of bank loan growth over the past year. - Whalen also said margin lending and securities-related borrowing is growing faster than loans to non-depository financial institutions in the most recent quarter. - The report says bank-owned mortgage servicing rights, or MSRs, have been significantly overvalued since the end of 2023. - Whalen said the valuation issue is not limited to independent mortgage banks. - The report says banks are taking market share from independent mortgage banks in the third quarter. - Whalen said that shift could create a risk event for both banks and their customers as credit conditions tighten. - The report argues current accounting and lending practices have allowed banks to lend against MSRs at valuations that may be hard to realize in the market. - The report says some independent mortgage banks have recognized billions of dollars in noncash gains while using MSRs as collateral for bank financing.

Between the lines: - The earnings growth is being powered by activities that often benefit from strong markets, but those same activities can amplify losses when volatility rises. - The warning on MSRs suggests banks may be carrying mortgage-related assets at values that depend on stable market conditions and continued financing access. - The focus on private credit sponsors, securities lending and AI-linked borrowing signals a broader shift in bank balance sheets toward market-sensitive exposures.

What's next: - Whalen Global Advisors said copies of The IRA Bank Book Q3 2026 are available to Premium Service subscribers and for standalone purchase in the WGA store. - Media members can request a courtesy copy of the report by contacting info@rcwhalen.com. - The report suggests mortgage and securities-related risks may become more visible if credit conditions keep tightening.

The bottom line: - U.S. bank profits are up, but Whalen says the quality of that growth matters as much as the size of it.