Regional lenders are still struggling and face bleak outlooks six months following the start of the 2023 bank crisis, according to economists.
Silicon Valley Bank and Signature Bank collapsed in March to start the crisis, marking two of the largest bank failures in U.S. history. Since then, America’s biggest bank JPMorgan Chase’s stock has risen in value, and the institution notched record earnings after acquiring First Republic Bank in May, the biggest bank that failed in the 2023 crisis, and the second-largest collapse ever.
Moreover, regional bank stocks, including PacWest Bancorp, Western Alliance Bancorporation, Zions Bancorporation and Comerica Incorporated have all significantly declined since March, losing between 25% and 70% of their value. While many of the largest banks’ stocks have also declined, they have not fallen as dramatically.
“I continue to be concerned about the banking sector, and regional banks in particular,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the Daily Caller News Foundation. “Thus far we have not seen any significant improvements in the balance sheets of those regional banks, nor any indication that current market trends will reverse.”
Federal Reserve Chair Jerome Powell raised the possibility of more interest rate hikes due to high inflation in an August speech at the Jackson Hole Economic Symposium. The Fed has raised interest rates 11 times since March 2022 to fight inflation, bringing the federal funds rate within a range of 5.25% and 5.50%, the highest since January 2001.
“The only regionals that have a hope of making it through the current storm are those who prudently hedged against interest rate risk – but they seem few and far between,” Antoni told the DCNF. (RELATED: Janet Yellen’s Policy Would Destroy Small US Banks While Bailing Out Chinese Depositors, Experts Say)
Bank deposits have been flat since 4th week of Mar, while cash assets jumped w/ the Fed bailout, peaking near end of June, but are now trending down; regionals seem to be struggling to keep the conjuring trick going – another bailout might be coming… pic.twitter.com/RFVVnIKf2B
— EJ Antoni (@RealEJAntoni) September 3, 2023
“There’s no question the [global systemically important banks, G-SIB] won and the middle-sized banks — let’s call that banks with between $50 billion and $250 billion in assets — were the losers,” Cumberland Advisors Chief Investment Officer David Kotok told CNN Business.
However, JPMorgan Chase and other large institutions helped prevent the contagion from spreading, Kotok told the DCNF.
“The United States was facing a banking system contagion. Money was flying out of banks,” Kotok told the DCNF. The money went to “fortress banks like JPMorgan Chase, and the other [biggest banks] … the JPMorgan fortress institutions played a critical role because they could take the incoming deposits because they were viewed as fortress safe.”
“We didn’t have a contagion meltdown, and we sure as hell don’t want one,” Kotok added.
JPMorgan Chase did not immediately respond to the DCNF’s request for comment.
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