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Ex-FDIC Head ‘Worried’ About Regional Banks’ Potential Weakness

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The former chair of the FDIC is looking for signs of weakness in regional bank earnings.

“I’m worried about a handful of them,” Sheila Bair, who headed the Federal Deposit Insurance Corp. during the financial crisis of 2008, said in an interview with CNBC Tuesday (April 16).

“I think some of them are still overly reliant on industry deposits, have a lot of concentrated commercial real estate exposure, and then I think the larger picture really is the potential instability of their uninsured deposits even for the healthy ones if we have another bank failure.”

These mid-sized banks will begin reporting their earnings this week, and Bair says she is concerned that issues that hurt the industry last year remain unresolved.

“Congress should reinstate the FDIC’s transaction account guarantee authority so that they can stabilize those deposits,” she said. “This is still a problem for the regional banks, and fingers crossed that there’s [not] another failure. We’re just not quite sure what’s going to happen.”

The CNBC report notes that this hasn’t been an easy year for regional banks, with the SPDR S&P Regional Bank ETF down nearly 13%, and just four of its members positive for 2024.

For example, New York Community Bancorp (NYCB) has plunged more than 71% this year. The lender earlier this year reported heavy losses and warned of weakness in its internal controls, an announcement viewed as something of a surprise, as NYCB had been seen as one of the “winners” in last year’s crisis after purchasing the failed Signature Bank.

Meanwhile, the report lists a handful of other regional banks — Metropolitan Bank Holding Corp, Kearny Financial Columbia Banking System and Valley National Bancorp — which are all down more than 30% so far this year.

“The big issue is whether there is another shock to uninsured deposits because of a bank failure, and I think that is really the biggest challenge confronting regional banks right now,” Bair told CNBC.

Amid the turmoil in the regional banking sector, PYMNTS wrote last month about a shift in behavior related to banking, with smaller community banks and credit unions becoming the place where consumers increasingly go for credit cards.

“The percentage of consumers with a community bank or credit union card as their primary card climbed from 8.3% in 2020 to 13% in 2023, according to PYMNTS Intelligence, while nearly a quarter of consumers said they would likely turn to these financial institutions the next time they applied for a new card,” that report said.