Other banks in the US are stumbling

There are more than 4,500 banks in the US – more than anywhere else in the world. The last hour has arrived for four of these banks in recent months. Now the share price of four other banks is falling dramatically.

Several regional banks desperately tried to convince the public of their financial soundness on Thursday, writes the New York Times. The reason: Their share prices crashed and investors were already betting on which bank could fall next.

The Pac West and the Western Alliance were at the center of the storm: PacWest shares lost 50 percent of their value Thursday and Western Alliance fell 38 percent. Other mid-sized banks including Zion And Comerica, also recorded declines in the double-digit percentage range. Trading in the shares of PacWest and Western Alliance was halted dozens of times on Thursday due to sharp price fluctuations.

“New York Times” analyzed what happened on the stock market on Thursday «remind that the banking crisis is still ongoing».

The current crisis manifested itself a few weeks ago: The Silvergate Bank and the Signature sofa (2022 the 29th largest bank in the US by deposits) have been in the past since March, both were heavily involved in the cryptocurrency business. Soon after, things went wrong Silicon Valley Bank (16th largest U.S. bank by deposits in 2022) sold its treasury portfolio at a large loss after a bank run, leading depositors to worry about the bank’s liquidity.

Finally, on May 1, it was announced that the First Republic Bank (14th largest bank in the US by deposits in 2022) was closed and swallowed by the giant JPMorgan Chase (the largest bank in the US by deposits). First Republic Bank’s share price is down 97 percent since the start of the year.

‘Institutional investors have now lost confidence in banks’Julian Wellesley, a banking analyst at Loomis Sayles, told the New York Times. This is of great concern to the banks, as it shows that the commitments that the institutions are financially sound are not having the desired effect.

4500 banks in the US

The large number of small banks in the US has shaped the economy in many ways. So there are banks that specialize in the specific forms of community in the states — such as the Bank of Bird-in-Hand, which specializes in loans for Amish homes. In addition, the huge banking sector would lead to much more lending than elsewhere, as lending is an important way of making money. Richard Squire, a law professor at Fordham University who specializes in financial and banking law, tells npr.

On the one hand, this is a great opportunity for the economy, on the other hand, overly aggressive lending practices were one of the root causes of the 2008 financial crisis. And: Smaller lenders are more vulnerable to bank runslike the one that led to the demise of Silicon Valley Bank. And just such bank runs would happen much faster in times of social media and e-banking, as people can communicate and move their money almost instantly.

Incidentally, the 4,500 small banks in the US are nothing compared to the 1920s, when there were almost 30,000 banks in America. And perhaps the number of small banks will shrink even more in the future. Squire expresses concern that the Events of the past few months will result in many closures of smaller lenders in the near future could be. Because they would now be scrutinized – and possibly confronted with stricter regulations. In addition, Americans have withdrawn about $200 billion from small banks in recent months and transferred them to accounts with a handful of the very large banking giants. Because they seem more stable to the Americans at the moment.

(yum)