How are the banks doing?

How are the banks doing?

Peter Reagan

That depends on who you ask…

According to FDIC Chairman Martin Gruenberg in his September 5 update, “The banking industry continued to show resilience in the second quarter.”

He also noted, “This is the tenth straight quarter that the industry has reported unusually high unrealized losses since the Federal Reserve began to raise interest rates in first quarter 2022.”

We all remember what happened back in 2023:

• Silicon Valley Bank became the 3rd largest bank failure in U.S. history
• That same month, two other banks collapsed: Silvergate Bank and Signature Bank (4th biggest)

• Swiss megabank Credit Suisse also failed in March
• 
  
• Then in May, First Republic Bank collapsed (2nd biggest)
• 
  
• Later that year, two regional banks failed: Heartland Tri-State and Citizens Bank (Iowa)

The Fed’s emergency backdoor bank lending program (BTFP) stopped making new loans in March – and I expected more trouble. One month later, Republic First Bank (different from First Republic Bank – I know, it’s confusing!) collapsed.

Since then, things have been relatively quiet on the banking front. Frankly that surprised me.

See, banks are still under a lot of pressure… Right now they’re sitting on losses nearly SEVEN times greater than during the worst of the Great Financial Crisis:

That is clearly the biggest challenge – but there’s more (quotes from Gruenberg’s September speech):

• The default rate on commercial real estate loans is “ts highest level since third quarter 2013”
• The default rate on multifamily real estate loans is “the highest since third quarter 2014”
• Banks simply gave up on ever getting paid for credit card loans at “ the highest rate reported since third quarter 2011”
• “deposits decreased $197.7 billion”

More...