Regional bank earnings could expose critical weaknesses, said Sheila Bair, former chairman of the Federal Deposit Insurance Corporation.
Their quarterly numbers will start hitting Wall Street this week.
“I’m worried about some of them,” Bair said on CNBC’s “Fast Money” Tuesday. “I think some of them are still overly reliant on industrial deposits, have a lot of concentrated commercial real estate assets, and then I think the bigger picture is really the potential volatility of their uninsured deposits, even for healthy, if we have another bank. refusal.”
Bair, who led the Federal Deposit Insurance Corp. (FDIC) during the 2008 financial crisis, is nervous that regional banks’ woes have not been fully resolved since 2023.
“Congress must restore the Federal Deposit Insurance Corporation (FDIC) transaction account guarantee authority so that they can stabilize these deposits,” she said. “This is still a challenge for regional banks and we’ll have our fingers crossed that [not] another failure. We’re just not quite sure what’s going to happen.”
Regional banks are still going through a difficult year. SPDR S&P Regional Bank ETF (KRE) down almost 13%, and only four of its members are positive for 2024.
The biggest laggard in the ERC is New York Community Bank which has fallen more than 71% this year. Metropolitan Bank Holding Corp.., Kearney Financial, Banking system of Colombia And Valley National Bank during this period decreased by more than 30%.
“The big question is whether there will be another shock to uninsured deposits due to a bank failure, and I think that’s really the biggest challenge facing regional banks right now,” she said.
Her latest warning about a regional bank has become a benchmark 10-Year Treasury Bill Yield exceeded 4.6% this week and reached its highest level since November 2023.
Bair is concerned that higher yields could put more strain on commercial real estate borrowers, and regional banks have greater risks.
“Part of the problem with commercial real estate is that most of it will be refinanced this year and next,” Bair said. “So the higher the rates on this refinance, the more problems borrowers will have in wanting to continue making payments.”
However, the problems of regional banks may attract more business to larger institutions.
“The difficulties of regional banks benefit large banks that are money centers. I have no doubt about it,” Bair said.
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