Another U.S. bank "exploded", many parties are nervous

March 8 will mark the first anniversary of the "explosion" of Silicon Valley Bank in the United States, and now the U.S. financial market is facing a new wave of worries. After announcing leadership changes and disclosing its internal control issues on February 29, local time, the share price of New York Community Bank (NYCB) fell more than 25% on March 1, hitting a new closing low since 1997. Many rating agencies rated the bank Bank ratings downgraded. Affected by this, the stock prices of other regional banks also fell. "The market has become nervous because of what we experienced last year," the New York Times reported.

Credit rating dropped to "junk"

According to a Bloomberg report on March 2, the stock price decline of New York community banks began in January this year. At the time, the bank posted an unexpected loss related to deteriorating credit quality and cut its dividend. On Thursday, the company released its latest document showing that it had written down $2.4 billion in goodwill due to problems found in the loan review process. The bank also said in the filing: "Management identified material deficiencies in internal controls related to internal loan reviews that resulted from ineffective oversight, risk assessment and monitoring activities." At the same time, later in the day, the bank announced that new leadership has been appointed to deal with the current situation.

The Wall Street Journal reported that "significant flaws" at New York Community Bank are related to the way the bank monitors and assesses risks in its loan book. The loans have been under scrutiny because the bank has significant exposure to commercial real estate, which has been declining in value.

Fitch Ratings downgraded New York Community Bank's credit rating to "junk" status, citing the bank's recent disclosures that "prompt reconsideration" of the adequacy of its preparations for potential commercial real estate losses. Last month, Moody's downgraded New York Community Bank's rating to "junk status," and this time it has further downgraded the bank.

The New York Times reported that the stock prices of other regional banks have also continued to decline. The stock prices of Silicon Valley National Bank and Columbia Banking System Corporation both fell by more than 2% on March 1, indicating that several small banks have collapsed for nearly a month. Years later, investors still lack confidence in the U.S. banking industry.

It is worth mentioning that in March 2023, New York Community Bank acquired some of the assets of the failed Signature Bank through its subsidiary Flagstar Bank. Its assets exceeded the US$100 billion mark, reaching US$116.3 billion, making it one of the 30 largest assets companies in the United States. One of the largest banks.

Commercial real estate puts pressure on small and medium-sized banks

Although New York community banks are much smaller than several banks that failed after a historic run in March 2023, bankers, regulators and analysts worry that more trouble could trigger another crisis, the Wall Street Journal reported. A crisis of confidence in regional banks. Bankers are particularly concerned about commercial real estate, where vacancy rates have risen sharply since the rise of remote working.

According to reports, waves of commercial real estate loans are coming due, which may put more pressure on smaller banks that hold large amounts of commercial real estate loans. Bloomberg quoted a report jointly released by Columbia University, Stanford University, Northwestern University and others as saying that as of the end of the third quarter of 2023, U.S. banks held approximately US$2.7 trillion in commercial real estate debt. A 10% default rate in commercial real estate would result in approximately $80 billion in additional bank losses, rising to an estimated $160 billion if the default rate climbed to 20%.

The International Monetary Fund (IMF) stated in a report that U.S. commercial real estate prices are experiencing the worst plunge in half a century, falling 11% since the Federal Reserve raised interest rates in March 2022. “The world of 2024 is going to be a painful world,” said Leo Leyva, co-chairman of the real estate-related practice at law firm Cole Shortz.

U.S. Federal Reserve officials have signaled they are in no rush to cut interest rates from their highest levels in decades. Lower interest rates have left many banks with paper losses on bonds they hold. Some customers, especially corporate ones, are wary of all but the big banks. Shares of many regional banks remain well below year-ago levels.

"The crisis has not been completely resolved"

In response to the high vacancy rate of commercial real estate in the United States, U.S. Treasury Secretary Yellen said at a hearing last month that the losses in commercial real estate are worrying and regulators are already ensuring the loan loss reserves and liquidity levels of the financial system. enough to cope with the current situation. She further said that changing work patterns, as well as the Federal Reserve's interest rate hikes, rising vacancy rates, and a wave of commercial real estate loans due this year are all affecting commercial real estate.

It is worth noting that on the day that New York Community Bank’s stock price plummeted, the Federal Reserve’s semi-annual monetary policy report stated that although the pressure on the U.S. banking industry has subsided, there are still some weaknesses in financial stability. The banking system is generally sound and resilient, but there are a number of risk areas that should be monitored. The report shows that officials are still highly concerned about inflation risks, and future data, prospects, and risks will guide interest rate decisions.

Yang Delong, chief economist of Qianhai Kaiyuan Fund, said in an interview with a reporter from the Global Times on the 3rd that the U.S. banking crisis has just passed a year ago, and now New York community banks are facing relatively large risks, which shows that the Federal Reserve has violently tightened its policies 11 times in a row. interest rates, pushing the benchmark interest rate to a high of 5.25%-5.5%, which has had a great impact on banks, causing a relatively large shrinkage of some U.S. debt held by banks, and also exposing banks to the risk of runs. Although Silicon Valley Bank went bankrupt at the time, the U.S. Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation jointly stated that they would protect the interests of depositors and temporarily avoided the bankruptcy of small and medium-sized banks. However, various problems have now been exposed in New York community banks, which shows that Bank of America The industrial crisis has not been completely resolved.

Yang Delong further said that the U.S. economic growth has also slowed down, inflation has returned, and the Fed's interest rate cut may be postponed to the second half of the year. In this case, it will have a great impact on the U.S. economy and will eventually be transmitted to the U.S. banking industry.