Regional bank earnings are under scrutiny for potential weaknesses, according to Sheila Bair, the former chair of the U.S. Federal Deposit Insurance Corp. These quarterly reports are being released this week, and Bair expressed concerns about certain banks that are heavily reliant on industry deposits and have significant exposure to commercial real estate. She also highlighted the instability of uninsured deposits in the event of a bank failure, urging Congress to reinstate the FDIC’s transaction account guarantee authority.
Bair, who led the FDIC during the 2008 financial crisis, remains uneasy about unresolved issues from 2023 leading to potential problems for regional banks. The performance of regional banks in 2024 has been challenging, with the SPDR S&P Regional Bank ETF (KRE) down nearly 13% and only a few banks showing positive returns.
Notable laggards in the KRE include New York Community Bancorp, Metropolitan Bank Holding Corp, Kearny Financial, Columbia Banking System, and Valley National Bancorp. These banks have experienced significant drops in their stock prices this year, reflecting the broader challenges faced by regional banks.
Bair emphasized the risk of another shock to uninsured deposits due to a bank failure, posing a major threat to regional banks. With the 10-year Treasury note yield surpassing 4.6% and concerns about higher yields impacting commercial real estate borrowers, Bair warned of potential distress in the sector.
Despite these challenges, regional banks’ struggles could benefit larger institutions, according to Bair. She believes that regional bank distress could lead to more business for big money-center banks. The ongoing issues in the regional banking sector underscore the need for vigilance and proactive measures to address potential vulnerabilities in the financial system.
Former FDIC chair Sheila Bair is concerned about the potential weaknesses in regional bank earnings as their quarterly financial numbers are released this week. She highlights issues such as overreliance on industry deposits, concentrated exposure to commercial real estate, and the instability of uninsured deposits. Bair suggests that reinstating the FDIC’s transaction account guarantee authority could help stabilize deposits and prevent future bank failures. Regional banks have been struggling this year, with the SPDR S&P Regional Bank ETF down nearly 13% and several individual banks experiencing significant declines. Bair warns that higher Treasury yields could further stress commercial real estate borrowers, potentially leading to more distress for regional banks. She believes that larger money-center banks could benefit from the distress faced by regional banks.
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