Former chair of the U.S. Federal Deposit Insurance Corp, Sheila Bair, has expressed worries about the upcoming earnings reports of regional banks. According to Bair, there are critical weaknesses that could be exposed, especially in terms of their reliance on industry deposits and concentrated commercial real estate exposure.
Bair, who led the FDIC during the 2008 financial crisis, highlighted that some of the issues faced by regional banks in 2023 still persist. She urged Congress to reinstate the FDIC’s transaction account guarantee authority to stabilize deposits. The potential instability of uninsured deposits remains a concern for both healthy and struggling regional banks.
The SPDR S&P Regional Bank ETF (KRE) has faced significant challenges in 2024, with a nearly 13% decline. Only a few members of the ETF have shown positive performance, while others, like New York Community Bancorp, have experienced substantial losses. Higher yields on the 10-year Treasury note pose a threat to commercial real estate borrowers, impacting regional banks with significant exposure.
The distress faced by regional banks could lead to opportunities for larger institutions. Bair noted that the challenges faced by regional banks could benefit money-center banks in terms of attracting more business. As regional banks grapple with their vulnerabilities, larger institutions may see increased activity.
The concerns raised by Sheila Bair regarding regional banks in 2024 highlight potential vulnerabilities in the banking sector. The unresolved issues from previous years, coupled with the current economic uncertainties, pose significant challenges for regional banks. It remains to be seen how these institutions will navigate the troubled waters ahead and what implications their struggles may have for the broader banking industry.