The US regional bank crisis

John Authers of Bloomberg writes in an email note this morning. The number of Banks in America has come down to the 6,000 range which is a 100% reduction over the last 30 years. We can expect that number of Banks to continue to reduce as retrenchment becomes mandatory for survival.

Despite the fire sale of First Republic over the weekend, confidence in regional banks grows ever weaker, with yet more selling of their shares Thursday. This is now getting to an extreme. Their valuation is almost back to the slough of despond in the Global Financial Crisis, while their relative performance compared to the market as a whole has plumbed a new depth:

This is not just affecting the smaller lenders, but has also taken big bites out of the market cap of some of the largest banking groups that lie outside the special regulatory category of those deemed too big to fail. The renewed speculation against one name after another is reminiscent of 2008. It’s dangerous to view everything through the lens of 2008, because it’s possible for a crisis to do serious damage while taking a different form, and not being quite as severe, as the GFC. That said, the temptation is strong as the GFC was the pivotal professional experience for most of the people now working in finance.

Why does it matter?

First, banks that are in trouble will tighten credit, and companies are now very worried that this is happening and could worsen. Remarkably, Bloomberg colleagues show that credit tightening has come up more often in earnings calls over the last few weeks even than during the horrors of 2008

Tags #US-regional-banks #2023-banking-crisis

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