Bank Stocks Slammed as Tariffs Drive Recession Fears

Key Takeaways

• The SPDR S&P Regional Banking ETF has fallen 14.6% in two days, while the SPDR S&P Bank ETF, focused on bigger banks, lost 13.6%.
• Stocks of nation’s largest banks post losses approaching 20%.
• Tariffs are “unconditionally bad” for banks.

With concerns rising about damage to the economy from President Donald Trump’s wave of tariffs, bank stocks were among the hardest-hit names in the stock market.

The $3.6 billion SPDR S&P Regional Banking ETF KRE fell 14.6% by Friday afternoon, while the $2 billion SPDR S&P Bank ETF KBE, which predominantly holds larger banks, dropped 13.6%. More broadly, financial stocks slid, but not as deeply as banks. The $52 billion Financial Select Sector SPDR ETF XLF fell 11.7%. Meanwhile, the $577 billion SPDR S&P 500 ETF Trust SPY fell 10.1%.

Among the country’s largest banks, Citigroup C has plunged 19.1%, Bank of America BAC dropped 18.2%, and Wells Fargo WFC lost 15.9%. JPMorgan Chase JPM came out better, falling 14.0% since tariffs were announced, as did Bank of New York Mellon BK which lost 11.8%. Meanwhile, East West Bancorp EWBC plummeted 19.9%.

The tariffs are “unconditionally bad” for US banks, according to Morningstar senior equity analyst Suryansh Sharma’s research note on the tariffs. The selloff reflects a dramatic turn for the worse among financial stocks. The sector had been among the best-performing groups in 2024, with a 31.23% return. The sector is down 1.2% this year. It’s still doing better than the broader market, with the SPDR S&P 500 ETF down 8.8% over the same period. Bank stocks have been the primary area of pain, with the SPDR Bank ETF having fallen 12.4% in 2025.

Coming into 2025, banks were benefiting from a healthy economy and a favorable interest rate environment. But with tariffs, that outlook has changed dramatically. “The banking business is inherently tied to the macroeconomic performance of the US economy, and any negative impact on the economy will eventually percolate through the US banking industry’s profitability,” writes Sharma.

The banking sector is fairly valued on average, albeit with a high degree of uncertainty. For example, even with the decline in Wells Fargo stock, the shares are only now trading down to Sharma’s fair value estimate. Valuations will also depend on the duration of the tariffs, which is unclear. “If the current tariff regime remains in place in the long run, the US banking industry will certainly be hit hard, and the probability of recession will increase substantially,” says Sharma. “We estimate a midteens percentage fair value estimate decrease for the sector in a bear-case scenario, but the bank stocks can correct significantly more than that in the near term, given the hit to their profitability.”