•   Energy price volatility risks becoming structural, potentially forcing a hawkish Fed pivot contrary to market expectations.
•   Private credit markets pose systemic risk due to opacity, leverage, and limited regulatory oversight.
•   Stablecoins and tokenization threaten traditional banking models by disintermediating deposits and payments.
•   Credit spreads may be underpricing rising economic uncertainty and weakening growth fundamentals.
•   Labor market softening, especially in job openings, signals deeper structural and AI-related disruptions.
•   Deglobalization and supply chain realignment could sustain higher inflation and increase global capital fragmentation.

Ahead of Risk Americas, we spoke with Venkay Veeramani about U.S. banks face mounting macro risks from persistent energy-driven inflation, opaque private credit exposure, and disruptive financial technologies like stablecoins. Combined with weakening labor indicators and fragile credit spreads, these forces challenge conventional risk models and could force abrupt policy shifts, testing balance sheets, funding stability, and long-term profitability.

What macro risks do you believe U.S. banks are systematically underestimating?

Prices of oil and oil derivatives have sharply increased in recent week but are volatile. Typically, the Fed would give less weight to volatile energy prices, but the longer it takes for the global energy markets to find a balance higher are the odds of structural changes to the market that could cause prices to stay elevated across a range of raw materials, intermediate & finished goods, and services. While the current consensus is for a 25-bps cut in the policy rate before the end of this year, reintroduced energy-driven inflation may prompt a hawkish response by the Fed. Banks have likely postured balance sheets and hedge positions to absorb the impacts of declining rates, but a reversal in the Fed’s course towards increasing rates may have an adverse impact on margins and economic value.

Another macro risk is related to the private credit market, which operates largely outside of traditional banking regulations, and has seen systemic risk increase and could deteriorate further if economic conditions become unfavorable.

Additionally, U.S. banks may be underestimating the potential of stablecoins to bring about structural changes to the funding, lending, and payment activities of banks.

What economic indicators are you watching most closely right now that you think markets or risk teams may be underweighting?

Credit spreads and new job opening rate are a couple of economic indicators that I am watching closely.

Credit spreads continue to remain low by historical standards. Resiliency of the US economy was a major factor that contributed to the narrowing of credit spreads in recent years. However, that resiliency story is starting to show some weakness and economic uncertainty is increasing, which could cause credit spreads to widen further than that currently considered by the market.

U.S. labor market continues to weaken with the economy adding 6,000 jobs per month in the recent 3 months vs the last 5-year average of 180,000. Job opening rate in this business cycle is trending on par with that observed during the 2007-2009 Great Recession. Potential productivity gains from AI adoption may be holding back businesses from increasing their headcount. However, if AI is not able to deliver on the expected efficiency or productivity gains, then economic growth will suffer. On the other hand, if AI-related efficiency gains materialize and the current level of job opening rate becomes the norm, then there may be broader societal ramifications which the market is yet to fully grasp. To some extent this can be seen in the uptick in unemployment rate for new college grads and entry level workers as businesses target AI as a replacement for those workers.

How might structural shifts such as deglobalization or supply chain realignment redefine the global macroeconomic landscape over the next decade?

The global economy is shifting from one that is built over the last few decades for efficiency to one that is being built around resiliency. Post-pandemic trends clearly suggest that nations are prioritizing security and reliability and are forcing businesses to forego short-term profits. The global energy supply disruption in recent weeks further strengthen the argument for reliability and security over efficiency.

Supply chain realignment towards domestic production/reliance may result in short-term price increases as domestic producers work towards building out necessary infrastructure. If/when increased productivity is recognized from investments in infrastructure, prices for goods would decline eventually. Efficiencies recognized in a globalized system (i.e., absolute/relative advantages) would be lost in a repatriated supply chain. While the use of AI is promising productivity gains, it is likely that some goods would be more costly to produce domestically.

Shifts away from a monocentric global system towards multipolarity would fragment available capital, resulting in a reduction in foreign investment demand stemming from unfavorable investor sentiment, attractive alternative markets, or sovereign restrictions on U.S. investment. Multipolarity could also increase the cost of capital for businesses, especially for those in the emerging markets.

After recent statistics on inflation and unemployment in the US, there has been lots of talk about stagflation fears, in your opinion, do you believe this is a serious threat? And how can banks prepare for the possibility? 

While the overall macroeconomic environment of slower growth rate and above target inflation rate are concerning, the U.S. economy is not at the risk of falling into a 1970s style stagflation.

Disruption of global energy supply and lingering tariff uncertainty is threatening to reignite inflation, which is bound to negatively impact consumer confidence and consumer spending. Meanwhile, the U.S. economy which was on a stronger footing has started to show cracks in recent months. The One Big, Beautiful Bill ACT was expected to give a boost to consumer spending, but the rise in energy cost could negate those gains. The headline unemployment rate at 4.4% is not high but is slowly creeping up, and the job opening rate is anemic. If the economic trend were to continue, a less severe form of stagflation is possible, forcing the Fed to make a hawkish pivot to fight inflation, which could cause the economic growth rate to slowdown and labor market conditions to weaken. As credit risk generally increases during economic downturns, it may be prudent to increase credit loss provisions beyond what management may otherwise consider. Higher rates generally benefit banks if its earning assets are performing. Nevertheless, it is important to evaluate the sensitivity of a bank’s balance sheet to changes in rates before taking any actions. To hedge the risk of increasing rates, banks may promote adjustable-rate pricing and limit duration on earning assets. Additionally, banks may consider locking-in term funding at current rates and allow existing floating-to-fixed swaps to unwind. For banks with material exposures in foreign currencies, it may be worthwhile to consider establishing a position in sell-dollar FX futures/forwards towards currencies with relative macroeconomic tailwinds.

How durable do you think current funding models are if we see renewed market volatility?

This would ultimately depend on the source/nature of the potential market disruption.

Current bank funding models are vulnerable to technological disruption but may be relatively durable amidst traditional market volatility. Potential disintermediation stemming from continued adoption of blockchain technology (e.g., stablecoins, tokenized securities) and non-bank financial institutions (fin-techs) may result in a decline in historically sticky deposit funding throughout the system. If this risk materializes, bank funding models would shift towards placing increased reliance on wholesale funding sources (e.g., brokered deposits, warehouse lines, term funding). Elevated competition for deposits may drive an increase in pricing across the system and compress margins.

GSIBs would be the beneficiaries in this scenario, as the largest institutions have the requisite capital to make technological investments and as consolidation in the deposit market would favor more stable institutions.

Absent major technological disruptions in banks’ role as financial intermediaries, market volatility would have the greatest impact on riskier institutions. As in the 2023 banking crisis, deposit runs were focused on institutions whose financials reflected elevated risk on the balance sheet. Banks with elevated deposit concentrations, unrealized investment portfolio losses, and uninsured deposit exposures would be subject to any initial impact on bank funding structures. In the current market, institutions with elevated exposures to NDFIs, including private credit exposures, may also be subject to deposit runoffs given the illiquid and opaque nature of these assets. Banks which exhibit less-risky balance sheets would remain durable in this scenario, although there may be a shift towards term funding (e.g., CDs, term borrowings/brokered) if rates begin to rise amidst market volatility.

If you were a Chief Risk Officer at a mid-sized U.S. bank today, what would be keeping you up at night? 

Risks are numerous and have evolved in sophistication, speed, and severity over the years; however, the following are a few that are growing in importance but are yet to be fully understood: AI adoption, potential AI valuation readjustment, impact of tokenization of securities and stablecoins on banking, deregulation, and systemic exposure to private credit and the broader Non-Depository Financial Institutions (NDFIs).  

Developments in AI are promising significant productivity and efficiency gains, and the market is investing billions in realizing those promises. However, if AI is not able to fully deliver on those promises, then economic growth could suffer, job losses could increase, and equity markets could decline sharply. In addition, without proper guardrails, adoption of AI for decision making purposes could result in bias and discrimination, increasing legal and reputational risk.

Technological advancements in payment digital assets have come a long way. Stablecoins and tokenized securities continue to gain acceptance and has the potential to reduce cost, increase efficiency, offer near-instant transfer and global access, but also increases issuer risk, transparency risk, cyber risk, and operational risk in the financial system. Nevertheless, competitors which effectively leverage these tools may achieve notable advantages in customer acquisition/retention, data harvesting/analysis, and operating efficiency. In the long run, stablecoins and tokenized securities have the potential to fundamentally alter the banking industry, which may require Chief Risk Officers to enhance or add a few more plays in their risk management playbook.

Efforts to relax liquidity-related regulation is evolving. In general, lowering liquidity standards for banks will increase liquidity in the system but would also increase liquidity risk in the system.

U.S. bank exposure to NDFIs, including private credit, has increased multifold in recent years. In recent quarters, risks in this exposure category have increased; however, due to the lack of transparency on credit performance, the true extent of risk is not well understood. Banks which have been a provider of funding and liquidity to this exposure category face heighted risk.