Regional banks' earnings may reveal critical weaknesses, according to Sheila Beer, former head of the US Federal Deposit Insurance Corp.
Their quarterly numbers start arriving on Wall Street this week.
“I'm concerned about a bunch of them,” Bear told CNBC's Fast Money on Tuesday. “I think some of them are still overly reliant on industry deposits, they have a lot of exposure to concentrated commercial real estate, and then I think the bigger picture is actually the potential instability of their uninsured deposits even relative to healthy deposits if we have another bank fail.”
Baer, who ran the FDIC during the 2008 financial crisis, is nervous that regional banks' problems as of 2023 won't be fully resolved.
“Congress should restore the FDIC’s transaction account guarantee authority so they can stabilize those deposits,” she said. “This is still a problem for regional banks, and there is no other failure. We are not quite sure what will happen,” he added.
Regional banks are having a tough year so far. the SPDR S&P Regional Bank ETF (KRE) It's down nearly 13%, and only four of its members are positive for 2024.
KRE's biggest laggard is… New York Community Bancorp Which decreased by more than 71% this year. Metropolitan Bank Holding Company., Kearney Finance, Colombia's banking system And Valley National Bancorp It's down more than 30% in that time period.
“The big issue is whether there is another shock to uninsured deposits due to bank failures, and I think that is the biggest challenge facing regional banks at the moment,” she said.
Its latest warning from the regional bank comes as standard 10-year Treasury bond yield It exceeded 4.6% this week and reached its highest levels since November 2023.
Baer is concerned that higher yields could put more pressure on commercial real estate borrowers, and that regional banks have too much exposure.
“Part of the problem with commercial real estate is that a lot of it is being refinanced this year and next year,” Baer said. “So, the higher the interest rates on these refinancings, the more pressure there will be on borrowers to be able to continue making their payments.”
However, issues of regional banks could bring more business Larger institutions.
“The distress of regional banks benefits the big banks in the money center. There's no doubt in my mind,” Beyer said.
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