- ORIGINAL NEWS
Regional bank earnings may expose critical weaknesses, former FDIC Chair Sheila Bair warns
- SUMMARY
The health of regional banks is under scrutiny as they prepare to release their quarterly earnings.
Sheila Bair, a former FDIC chair, expresses concern about some regional banks that rely heavily on industry deposits and have significant commercial real estate exposure.
She emphasizes the potential instability of their uninsured deposits, which could impact even healthy banks if another bank fails.
Bair highlights the lingering issues from 2023 and calls for Congress to reinstate the FDIC’s transaction account guarantee authority to stabilize these deposits.
The ETF tracking regional bank stocks has declined by almost 13% this year, with several members facing substantial losses.
One of the primary concerns is the potential impact of higher Treasury yields on commercial real estate borrowers.
Regional banks have significant exposure to this sector, and rising rates could lead to distressed borrowers who struggle to make payments.
If regional banks face challenges, it may benefit larger money-center banks, as their distress can lead to increased business for these institutions.
Despite these concerns, Bair emphasizes that some regional banks remain healthy and that the overall health of the financial system is not currently at risk.
However, she urges careful monitoring of the upcoming earnings reports to assess the potential vulnerabilities within the regional banking sector.
- NEWS SENTIMENT CHECK
- Overall sentiment:
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“Their quarterly numbers begin hitting Wall Street this week.”
“I’m worried about a handful of them,”
“Bair, who ran the FDIC during the 2008 financial crisis, is nervous that regional bank issues from 2023 aren’t fully resolved.”
“Congress should reinstate the FDIC’s transaction account guarantee authority so that they can stabilize those deposits.”
“This is still a problem for the regional banks, and fingers crossed that there’s [not] another failure. We’re just not quite sure what’s going to happen.”
“Regional banks are having a tough year so far. The SPDR S&P Regional Bank ETF (KRE) is down almost 13%, and only four of its members are positive for 2024.”
“The biggest laggard in the KRE is New York Community Bancorp which has tumbled more than 71% this year.”
“The big issue is whether there is another shock to uninsured deposits because of a bank failure, and I think that is really the biggest challenge confronting regional banks right now,”
“Her latest regional bank warning comes as the benchmark 10-year Treasury note yield topped 4.6% this week and hit its highest level since November 2023.”
“Bair is concerned higher yields could put more stress on commercial real estate borrowers, and regional banks have a lot of exposure.”
“So, the higher the rates go for those refinancings, the more distress there will be with borrowers to be able to continue with their payments.”
“Regional bank distress benefits the big money-center banks. There’s no doubt in my mind,”