Big banks including JPMorgan Chase and Goldman Sachs had just finished taking victory laps after a blockbuster quarter when concerns emerged from an obscure corner of Wall Street, sending a collective shiver through global finance.

Regional bank Zions late Wednesday disclosed a near total wipeout on $60 million in loans after finding “apparent misrepresentations” from the borrowers. The next day, peer Western Alliance said that it had sued the same borrower, a commercial real estate firm called the Cantor Group, for alleged fraud.

The result was a sudden and deep selloff among regional banks, drawing comparisons to the churn of the 2023 banking crisis that consumed Silicon Valley Bank and First Republic. This time around, investors are focused on a specific type of lending made by banks to non-depository financial institutions, or NDFIs, as the source of possible contagion.

“When you see one cockroach, there are probably more,” JPMorgan CEO Jamie Dimon said this week. “Everyone should be forewarned on this one.”

Concerns over credit quality had been simmering for weeks after the September collapse of two U.S. auto-related companies. JPMorgan, the biggest U.S. bank by assets, this week reported a $170 million loss tied to one of them, the subprime auto lender Tricolor.

But it wasn’t until a third case of alleged fraud around loans made to NDFIs that investors were jolted into fearing the worst, according to Truist banking analyst Brian Foran.

“You now have had three situations where there was alleged fraud” involving NDFIs, Foran said.

Dimon’s comments “really resonated with people who were like, ‘Oh, man, the tide went out a little bit, and now we’re seeing who was lacking their swim trunks,” Foran said.

What are NDFIs?

The episode cast a spotlight on a fast-growing category of loans made by regional banks and global investment banks alike. Rules put into place after the 2008 financial crisis discouraged regulated banks from making many types of loans, from mortgages to subprime auto, leading to the rise of thousands of non-bank lenders.

Moving riskier activities outside of the regulated bank perimeter, where failures are backstopped by the Federal Deposit Insurance Corporation, seemed like a good move.

But it turns out, banks are a major source of funding for non-bank lenders: commercial loans to NDFIs reached $1.14 trillion as of March, per the Federal Reserve Bank of St. Louis.

Bank loans made to non-bank financial firms were the single fastest-growing category, rising 26% annually since 2012, according to the St. Louis Fed.

“The surge in NDFI lending was really because all these different regulations added up to say there are a bunch of loans banks can’t do anymore, but if they lend to someone else who does them, that’s OK,” Foran said.

“We really don’t know much about these NDFI books,” Foran said. “People are saying, ‘I didn’t know it was so easy for a bank to think they had $50 million in collateral and find out they had zero.'”

‘Overreaction’ or early?

Part of what’s spooking investors is that, while some of the loan losses disclosed have been relatively small, they’ve been near total wipeouts, said KBW bank analyst Catherine Mealor.

“NDFI lending, because of the collateral involved, typically has a higher loss rate, and the losses can come very quickly and out of nowhere,” Mealor said. “It’s really hard to wrap your mind around these risks.”

Mealor said investors have been inundating her with questions around the level of NDFI exposures in her coverage universe, the analyst said. Firms including Western Alliance and Axos Financial are among those with the highest proportion of NDFI loans, according to an August research note from Janney Montgomery.

Still, regional banks are benefitting from an improving interest rate environment and rising mergers activity, which underpin valuations, Mealor said, adding she thinks this week’s stock selloff was an “overreaction.”

“You want to avoid companies that show up high in the screen for NDFI loans,” she said. “There are plenty of high-quality companies in the KRX that are trading at a massive discount.”

Correction: This article has been updated to remove an incorrect mention of losses at one of the regional banks tied to the alleged loan fraud.

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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high net worth investor and consumer. Sign up to receive future editions, straight to your inbox.

President Donald Trump’s proposed $5 million “gold card” for U.S. residency would be one the most expensive in the world, according to experts.

Yet it also includes a tax loophole that would give the new-card holders a lucrative benefit not available to American citizens, experts say.

Trump this week announced the creation of a new investment visa that gives the overseas wealthy permanent residency and a path to citizenship in return for $5 million. Attorneys who advise the wealthy on migration and investment visas say demand is already strong.

“The introduction of the gold card visa program represents a unique opportunity for high-net-worth individuals looking to secure U.S. residence with a pathway to citizenship,” said Dominic Volek, head of private clients at Henley & Partners. “The U.S. remains the undisputed leader in private wealth creation and accumulation.”

Volek and others who cater to the global rich say they’ve already fielded calls from clients wanting to purchase a Trump gold card. Approximately 135,000 of the world’s millionaires are projected to migrate to a new country in 2025, according to Henley. The United Arab Emirates and the U.S. typically top the list of destinations.

“I think it’s going to sell like crazy,” Trump said at his first Cabinet news conference Wednesday. “It’s a bargain.”

While the details remain unclear, the proposal would radically change the U.S. residency path for the global rich, who currently have to navigate a patchwork of programs with tight restrictions to stay in the country. It would also mark a major potential tax change for the global rich living in the U.S., carving out a new loophole for gold-card holders.

Currently, U.S. citizens, permanent residents, and green-card holders are required to pay income tax on their U.S. earnings as well as any income they earn overseas, including in their home country. The U.S. tax on worldwide income has traditionally made U.S. residency or citizenship far less attractive for the global rich, who have businesses spread across the world and often sheltered in tax havens.

Trump said gold-card holders would not be subject to taxes on their overseas income. The provision means that gold-card residents will be able to purchase a tax benefit not available to U.S. citizens. Advisors say they’re waiting on clearer directives, since the program could create dual classes of taxpayers among the American wealthy.

Yet the international income carve-out makes it far more attractive to the world’s ultra-wealthy.

“This would be a big departure” in tax treatment, said Laura Foote Reiff, an attorney at Greenberg Traurig who specializes in business immigration. “There are many wealthy individuals who are invested in U.S. companies or have families here that do not become permanent residents because they don’t want the tax consequences.”

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The tax loophole is one reason the government can charge a premium for the gold card. At $5 million, the program would be among the most expensive in the world. Volek said Singapore’s Global Investor Program requires an investment of 10 million Singapore dollars, or about $7.5 million. New Zealand’s most expensive program requires an investment of up to 10 million New Zealand dollars, or about $5.7 million. 

Most investment visa programs around the world cost less than $1 million, attorneys say.

About 100 countries offer some type of investment visa program, with about 60 jurisdictions actively promoting their programs, according to Henley. Roughly 30 programs dominate the $20 billion a year investment migration business, with Malta, the UAE, Portugal, Italy and several jurisdictions in the Caribbean being the most popular.

At Wednesday’s news conference, Trump and Commerce Secretary Howard Lutnick said the U.S. gold card would replace the current investment visa program, called EB-5, which offers green cards to those who invest at least $900,000 or $1.8 million, depending on the area and project. The EB-5 program been plagued by delays and a history of fraud and abuse. The program was renewed by Congress in 2022 with major changes that required the investments to be channeled to more rural, poor areas and to infrastructure projects.

When it comes to applicants, China has been far and away the largest source of those seeking EB-5 visas, with Taiwan, Vietnam and India also ranking high. The U.S. issued just more than 12,000 EB-5 visas last year, with two-thirds going to Chinese nationals, according to the State Department. 

The wealthy Chinese are also the dominant users of investment visa programs around the world, including in Europe, Australia and New Zealand.

While Trump said the U.S. could sell a million gold cards, attorneys say the likely demand is a fraction of that total – perhaps thousands but not hundreds of thousands. There are about 424,000 people in the world worth $30 million or more, with 148,000 of them in the U.S., leaving about 277,000 overseas ultra-wealthy who could reasonably afford the program.

Yet only a small fraction of them would likely apply to live in the U.S., immigration attorneys say. Last year, the U.S. had a net inflow of about 3,800 millionaires according to Henley.

“Hundreds of thousands sounds high,” Foote Reiff said. “There may be businesses that would pay to bring in top talent, like research scientists that they want to bring here and not be subject to quotas.”

One big draw of the new program is tax benefits. Historically, permanent residents in the U.S. have to pay income tax on their U.S. earnings as well as any income they earn overseas, including in their home country. The U.S. tax on worldwide income makes it far less attractive for the global rich who have businesses spread across the world and often sheltered in tax havens.

Trump said he expects the biggest demand will be from companies (especially in tech, like Apple) seeking to hire top college graduates in the U.S. who come from India, China or other countries but can’t get proper visas.

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