What Changed?
The banking industry’s headline results still look fine—profits are steady, margins haven’t collapsed, and deposits are no longer shrinking. But the center of gravity has shifted from credit risk to funding risk.
In the FDIC’s third-quarter 2025 profile, net interest margin improves modestly. That’s the good news. The more important detail is how it improves: earning-asset yields rise faster than funding costs in the quarter, even as deposit mix continues moving toward interest-bearing balances.
The question for a “higher for longer” regime is less about whether banks can handle high rates in theory—and more about whether they can handle deposit competition in practice, while loan demand remains uneven.
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The Numbers
Industry net interest margin (NIM): 3.34% in Q3 2025, up 9 basis points from Q2.
Q3 rate math: yield on earning assets +11 bps versus cost of funds +2 bps.
Domestic deposits: +$92.2B (+0.5%) in Q3; interest-bearing deposits rise while noninterest-bearing is roughly unchanged.
Loan growth: total loans and leases +$159.0B (+1.2%) in Q3; 12-month growth rate 4.7%.
Deposit competition benchmark (as of Dec. 15, 2025): national rates include 0.58% on money market and 1.63% on 12-month CDs, with national rate caps above 5% for several tenors.
Why It Matters
“Higher for longer” is often framed as an asset-side story—loans reprice, securities roll down, and margins eventually normalize. In 2025, the more decisive story is on the liability side. Even with Q3’s NIM improvement, the deposit base keeps migrating toward interest-bearing balances, which raises the odds that funding costs keep grinding higher even if asset yields stop rising at the same pace.
On the demand side, banks don’t have a clean, broad-based loan acceleration to offset that pressure. The Fed’s October 2025 SLOOS shows banks tightening C&I standards across firm sizes, while reporting stronger C&I demand mainly from large and middle-market borrowers and essentially unchanged demand from small firms. That mix is consistent with a world where balance-sheet growth exists, but pricing power is harder to sustain.
Weekly Fed H.8 data reinforces the “steady, not booming” picture—loans and leases in bank credit show mid-single-digit annualized growth rates into late 2025, not the kind of surge that naturally outruns funding repricing.
Preparedness, then, looks practical:
A deposit franchise that stays “transactional” rather than rate-chased
Asset-liability discipline that assumes margins can compress again
Underwriting that preserves spread without relying on volume
Takeaway
Banks don’t need a crisis to face a harder year. In a higher-for-longer regime, the quiet risk is that deposit competition keeps getting sharper while loan demand stays selective—turning NIM from a tailwind into a slow headwind.
— Lauren Brown
Editor, American Ledger
Sources
Federal Deposit Insurance Corporation, November 2025 https://www.fdic.gov/quarterly-banking-profile/quarterly-banking-profile-third-quarter-2025-pdf.pdf
Federal Deposit Insurance Corporation, November 2025 https://www.fdic.gov/quarterly-banking-profile/quarterly-banking-profile-q3-2025
Federal Deposit Insurance Corporation, December 2025 https://www.fdic.gov/national-rates-and-rate-caps
Federal Reserve Board, November 2025 https://www.federalreserve.gov/data/documents/sloos-202510.pdf
Federal Reserve Board, December 2025 https://www.federalreserve.gov/releases/h8/current/h8.pdf