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Cockroaches are threatening banks
The KBW Regional Banking Index crashed six percent on one day in October 2025, which was its worst day since the April tariff chaos earlier this year. Regional banks are not the giant banks known across the country, and they are not the small-town banks making mom-and-pop loans. Think, somewhere in the middle, but on the smaller end of that range.
One regional bank announced it would take a $50 million charge-off to cover two loans taken out by borrowers facing legal actions. (A “charge-off,” sometimes referred to as a “write-off,” is an accounting term used by a creditor, like a bank, to indicate that a debt is unlikely to be collected.) Another bank filed a lawsuit against one of its customers, alleging that it committed fraud. Locally, Barron’s reported that clients [represented by Peiffer Wolf] are suing Berkshire Bank for its alleged ties to a $50 million Ponzi scheme.
Then, going up to the national level for banks, JP Morgan reported a $170 million charge-off connected to the bankruptcy of an auto-loan lender that was accused of fraud. Jamie Dimon, the CEO of JPMorgan, warned investors that “when you see one cockroach, there are probably more.”
Will Dimon be right? Well, it seems odd that there were so many fraud-related loan write-offs and other shenanigans in such a short period of time. But I won’t only be looking for cockroaches; I will also be on the lookout for other warnings as well as opportunities.
Two strategic implications follow from these cockroaches potentially crashing the economy. First, bank stocks are classic cyclical barometers that remind investors that commercial credit is where cracks appear first. We should watch employment next; real trouble typically shows up after layoffs bite, but we are not there yet.
Second, the setup favors consolidation, which presents an opportunity. The large banks are doing well, including JPMorgan. JPM’s charge-off amounted to 6.6 percent of net charge-offs this quarter; without that exposure, charge-offs at JPM would have beat expectations just like every other money center bank that reported so far this quarter.
With merger and acquisition burdens relatively light and technology allowing for easier operational integration, I would not be surprised to see the most significant M&A wave in regional and community banks since the 1990s. That is a tailwind for the best-run capital-markets banks now, and a likely exit route for weaker institutions.
Source: The Berkshire Edge October 27 2025
