More and More Problem Banks in the USA

The List of Problem Banks in the USA Continues to Grow, Signaling Ongoing Challenges within the American Financial Sector

While New York Community Bank recently received a stabilizing financial injection of USD 1 billion from a group of investors, focus shifts to other smaller institutions grappling with shaky financial footing.

Memories of the collapse of Silicon Valley Bank just a year ago resurface, underscoring the severity of the situation. According to recent data from the Federal Deposit Insurance Corporation (FDIC), the number of financially troubled banks in the USA surged by eight to 52 institutions during the fourth quarter of 2023, marking an alarming 18 percent increase, as reported by the Financial Times.

Particularly concerning is the rise in defaults on credit card and commercial real estate loans, which have now reached their highest levels in almost a decade, notes the FDIC.

Although the specific institutions facing challenges are not disclosed, it is evident from the data that they are predominantly small to medium-sized banks. Despite their relative size, the total assets of these problem cases are estimated at a significant $66 billion, accounting for 0.2 percent of the entire banking sector.

FDIC chief Martin Gruenberg underscores the substantial downside risks posed by ongoing economic uncertainty, geopolitical tensions, inflationary pressures, and volatility in market interest rates. Additionally, emerging risks in some banks’ commercial real estate portfolios exacerbate the sector’s vulnerabilities. The decline in the commercial real estate (CRE) sector, particularly in office property prices, has prompted write-downs at numerous banks across the USA. Many borrowers are grappling with dwindling rental income, necessitating downward revisions in property valuations and potentially leaving loans exceeding their market value.

The crisis has also cast a shadow of uncertainty over New York Community Bank (NYCB), which had previously maintained substantial positions in the CRE sector despite early indications of trouble…hence the injection of USD 1 billion.

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