JPMorgan Chase’s “cockroaches” warning may signal broader strain on regional banks and non-bank lending

• Immediate impact: Regional banks and lenders recorded charge-offs and legal claims tied to Tricolor and First Brands.

• Market reaction: Zions fell ~13%, Western Alliance ~10%, and Jefferies dropped over 10% after exposure disclosures.

• Systemic indicator: Non-bank lending is the leading driver of U.S. loan growth in 2025 (Federal Reserve data), raising contagion concerns.

Banking contagion risk rises after Tricolor and First Brands collapses; monitor regional bank charge-offs, loan provisions, and non-bank lending exposure. Read the latest analysis from COINOTAG.

By COINOTAG | Published: 2025-10-17 | Updated: 2025-10-17

What is banking contagion risk?

Banking contagion risk describes how losses at one borrower or non-bank counterparty can spread through lenders, asset managers, and markets. It occurs when unpaid loans, legal claims, or counterparty failures trigger charge-offs and investor panic, undermining credit intermediation and raising funding costs across the system.

How did the Tricolor and First Brands failures trigger market stress?

The collapses of Tricolor Holdings (a subprime auto lender) and First Brands (an auto parts supplier) produced direct credit losses and related legal actions that hit middle-tier banks and investment firms. Zions Bancorporation disclosed a $50 million charge-off tied to unpaid business loans in its California Bank & Trust division and reported discovery of related legal actions by other lenders. JPMorgan disclosed a $170 million wholesale lending charge-off linked to Tricolor, and a Jefferies asset management fund appears owed roughly $715 million by customers tied to First Brands, though Jefferies reported direct receivables of $43 million and $2 million in interest. These book losses, alongside legal uncertainty, prompted share-price declines and heightened scrutiny of non-bank lending exposures.

Frequently Asked Questions

How exposed are regional banks to non-bank lending losses?

Regional banks show varying exposure. Some reported specific charge-offs (e.g., Zions $50M), while others face legal claims or indirect counterparty risk. The Federal Reserve notes non-bank lending is the largest contributor to loan growth in 2025, which increases vulnerability where underwriting or collateral standards are weaker.

Is the banking system safe after these bankruptcies?

Short answer: systemic safety is not yet compromised, but risks are elevated. Several institutions called the market reaction “overdone” (Jefferies executives), and analysts at KBW urged caution. Regulators and bank management teams will need to monitor provisions, counterparty networks, and non-bank channels closely.

Key Takeaways

• Direct losses matter: Charge-offs like JPMorgan’s $170M and Zions’ $50M are tangible hits that reduce bank capital cushions.
• Non-bank lending is the amplifier: Growth in non-bank credit is the primary driver of loan expansion in 2025 (Federal Reserve), increasing contagion pathways.
• Watch balance-sheet signals: Rising loan-loss provisions, legal filings, and sudden increases in funding costs are early indicators to monitor.

Conclusion

The Tricolor and First Brands bankruptcies have exposed banking contagion risk tied to non-bank lending channels and borrower credit quality. Regional banks and asset managers have already recorded charge-offs and legal disputes, prompting market volatility. Authorities and bank risk teams will need to track loan-loss provisions, counterparty claims, and funding conditions to prevent further transmission. COINOTAG will continue to monitor official data from the Federal Reserve and industry notes from KBW and Jefferies for developments.

Sources (plain text): Jamie Dimon (JPMorgan Chase), JPMorgan disclosures, Zions Bancorporation disclosures, Jefferies Financial Group filings, Federal Reserve data, KBW analyst notes, statements from Richard Handler and Brian Friedman, and comments from David Chiaverini (Jefferies).