Former FDIC Chair Sheila Bair expressed concern about the stability of regional banks, particularly pointing out issues such as heavy reliance on industry deposits and concentrated exposure to commercial real estate. Bair, who led the FDIC during the 2008 financial crisis, emphasized the importance of reinstating the FDIC’s transaction account guarantee authority to stabilize deposits and prevent potential bank failures. She warned that if regional banks continue to struggle, it could lead to instability in uninsured deposits, posing a significant challenge for the banking sector.
Regional banks have faced a challenging year, with the SPDR S&P Regional Bank ETF (KRE) down nearly 13% and only a few members showing positive performance. Specific banks like New York Community Bancorp and Metropolitan Bank Holding Corp have seen significant declines of more than 30% in value. Bair highlighted the risk of another shock to uninsured deposits in the event of a bank failure, especially as the 10-year Treasury note yield has recently surpassed 4.6%. She expressed concern that higher yields could add pressure on commercial real estate borrowers, further impacting regional banks which have substantial exposure in this sector.
Despite the challenges faced by regional banks, Bair noted that their struggles could potentially benefit larger institutions. She suggested that distress in regional banks could lead to more business for big money-center banks, indicating a possible shift in the market dynamics. As uncertainties loom over the regional banking sector, the importance of regulatory measures and proactive strategies to address vulnerabilities becomes increasingly crucial to maintain stability in the banking industry.