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A Geopolitical Shift
As of Thursday morning, a nearly two-week conflict in the Middle East between Israel and Iran appeared to reach a fragile détente. This came after the U.S. bombed nuclear facilities in Iran over the weekend, drawing immediate concerns about the cost of oil and gas. Those prices fell after a ceasefire was announced, according to CNN.
But the brief involvement of the U.S. in the war came as the Trump administration has seemingly drawn back from global affairs, via widespread tariffs and significant cuts to foreign aid. All of this creates instability in the global dynamic that could have far-reaching implications for the U.S. economy and banking system.
If geopolitical and economic volatility have become the norm, bank leaders should conduct stress tests to determine how much capital and liquidity they may need to weather those changes, says Jill Cetina, associate director of the commercial banking program at Texas A&M University. For example, banks could consider the yield on the 10-year U.S. Treasury note, which has largely hovered above 4% since mid-2023. That’s a key metric that affects rates on various loans; it could also add trillions to the national debt. What happens if that rate stays elevated or climbs higher?
Against this global backdrop, Cetina also sees stablecoin as a disrupter. Legislation passed the U.S. Senate in June that would create a regulatory framework for stablecoin, including issuance by banks and nonbanks; a House vote is pending. Jeb Hensarling, an economics fellow at the Cato Institute who formerly chaired the House Financial Services Committee, wrote in May that stablecoin legislation could strengthen the U.S. dollar and bolster demand for U.S. Treasuries.
But is the dollar’s role diminishing? Strategists at J.P. Morgan Private Bank noted in April 2025 that the dollar’s value could see a decline of 10% to 20% against the euro and yen. “We don’t see this as a breakdown in the dollar, but it is a reset,” they wrote. And Charles Schwab & Co. Chief Fixed Income Strategist Kathy Jones wrote in April that the dollar had responded in a surprising way to rising Treasury yields by weakening instead of strengthening. On Thursday, The Guardian reported that the dollar hit a three-year low this week.
These global and national concerns promise to impact banks across the country. Cetina recommends that bank leaders prepare for the potential impact of these challenges on their business models. “By delaying adaptation, [banks] are weakening their own businesses,” she says. “It’s like wishing for yesterday as opposed to adapting to today and the future.”
• Emily McCormick, vice president of editorial & research for Bank Director
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