The United States continues to be overshadowed by the cloud of recurring banking crises. In a report released this week, financial analysis consulting firm Klaros Group revealed that out of 4,000 American financial institutions, 282 are facing the pressure of bankruptcy.
In a high-interest rate environment, nearly 300 banks are facing the risk of closure. The US banking industry is facing unrealized losses of $700 billion to $1 trillion. Federal Reserve Chairman Powell stated that the situation of banks going bankrupt due to bad debts in commercial real estate is “controllable.”
After the Republic First Bank in Pennsylvania was ordered to close at the end of April, it became the first US bank to go bankrupt in 2024 and was taken over by the Federal Deposit Insurance Corporation (FDIC). This brings to mind the series of bank failures that occurred in Silicon Valley in March of last year, which had a global impact on the financial and cryptocurrency markets. This year, due to the surge in bad commercial real estate loans and the Federal Reserve’s continued maintenance of high interest rates, discussions about the recurrence of a banking crisis have been rampant.
According to CNBC, Klaros Group, a financial analysis consulting firm, stated in a report on Wednesday that out of 4,000 American financial institutions, 282 are facing the pressure of bankruptcy.
Since the outbreak of the Covid-19 pandemic, the US economy has faced considerable difficulties, including massive debts, the continuous inversion of US Treasury yields (i.e. short-term rates higher than long-term rates, a key indicator of economic recession), and the longest period of historically high federal fund rates in 23 years by the Federal Reserve to combat inflation. Combined with the continuous deterioration of bad commercial real estate loans, hundreds of small and regional banks in the US are facing survival threats.
Christopher Wolfe, Managing Director and Head of North American Banking at Fitch Group, one of the world’s three major credit rating agencies, also issued a warning. Brian Graham, co-founder and partner of Klaros Group, also commented in American Banker, suggesting that authorities adjust bank regulatory capital rules to better respond to reality.
It is worth noting that Federal Reserve Chairman Powell also admitted in early April that the increase in non-performing loans in commercial real estate could lead to the closure of some banks, but he believes that this will not pose a risk to the entire system and that the overall situation is still “manageable.”
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