Shares at several regional banks in the United States have been hit hard this week, sparking fears of another banking crisis. Furthermore, the fears have been sparked following a plunge in New York Community Bancorp’s stock.
New York Community Bancorp’s stock plunged after reporting unexpected losses on commercial real estate loans, extending losses to 60% so far this year.
US Banking Crisis Redux
It has been almost a year since the collapse of three US regional lenders. This left financial institutions and regulators scrambling to prevent the spread of a banking crisis. However, it appears to be a case of deja vu.
New York Community took over the failed Signature Bank last year, swiftly growing to over $100 billion in assets. However, roughly 40% of NYCB’s assets are not under FDIC insurance, reported macroeconomics outlet the Kobeissi Letter.
The stock’s decline accelerated after the bank posted an unexpected $260 million loss in Q4 2023. It is currently at its lowest level since June 2000.
This has renewed concerns about midsize regional banks with exposure to commercial real estate. Additionally, rating agency Moody’s downgraded NYCB credit ratings to junk on February 6.
Moreover, NYCB is not alone; at least nine other regional banks have suffered heavy losses since the beginning of 2024. On February 7, the Kobeissi Letter reported that Valley National Bank was down 25%, Metropolitan Bank had lost 15%, HarborOne dropped 14%, and Comerica Bank had sunk 13% so far this year.
Read more: 2023 US Banking Crisis Explained: Causes, Impact, and Solutions
Other regional banks seeing stock price slumps include Zions Bank (-12%), Western Alliance (-11%), Citizens Financial (-6%), and KeyCorp (-5%). Other banks with commercial real estate exposure, like M&T Bank, have also seen shares drop recently.
Fed Bailout Program to End
US banks hold about $2.7 trillion in commercial real estate loans. The crux of the problem is that about 80% of these loans are held by smaller regional banks, according to Goldman Sachs economists. These are the banks that the US government has not classified as “too big to fail.”
Moreover, the Fed’s emergency loan program for regional banks will end in March.
So far, the Bank Term Funding Program (BTFP) has handed out a whopping $165 billion in banking bailouts since it launched in March 2023, according to the St. Louis Fed. The Kobeissi Letter concluded with the query:
“The real question is did the regional bank crisis ever really end?”
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