Next week marks the anniversary of the mini-US banking crisis of 2023. The two most bitcoin-friendly banks, Silvergate and Signature, supporting the majority of fiat settlement for bitcoin trades between trading counterparties in the US both collapsed. Silvergate failed on 8 March.

Silicon Valley Bank then collapsed on 10 March 2023, marking the second largest bank failure in US history after Washington Mutual’s in 2008. We did not have long to wait for the third-largest. On the same day, Signature Bank customers withdrew more than $10bn billion in deposits. The bank-run quickly led to the third-largest bank failure in US history. Regulators announced on 12 March that Signature was being taken over to protect its depositors and the stability of the US banking system. In Europe, Credit Suisse failed soon after, to give the 2023 banking crisis an international dimension.
The anniversary of the three US bank collapses will be back in the news as a number of the gloomier economists are warning about a fresh wave of bank failures. They pray in aid of their argument, the ending of a scheme to prop up the US banking system.

BTFP ends on 11 March

On 11 March 11, the Federal Reserve will end the bank term funding program (BTFP). This launched in response to the failures of Signature, Silvergate and SVB. Thanks to a mix of good fortune and central bank prudence, only one more US bank has failed in the interim: First Republic Bank. Ending the BTFP program will increase banks’ borrowing cost. So, profit margins will fall. The obvious response will be to raise lending rates.

But is there scope for another crisis and a fresh wave of US bank failures?  Closure of the program will have been priced in. Banks can utilise the Fed’s discount window. The bigger risk is what is happening with commercial real estate lending.

US regional banks’ share price woes

It has been a challenging 12 months for the larger US regional banks. The First Horizon share price is down by 43% in the past year. It has some challenges of its own but look at its peer group. Comerica’s share price is down by 30% in the past 12 months. Citizens Financial, down 27%, Truist down by 26% over the same period. It is little better at Keycorp, down 24%, Zions 23% and Regions 21%. As for the others in this peer group, Huntington Bancshares is down by 16%, US Bank by 14%, M&T by 12%, PNC by 8% and Fifth Third by 7%.

New York Community Bank CRE challenges

The real headline-grabber is New York Community Bank. Its share price plunged by almost 40% on release of its Q4 2023 results. It lost over $250m on office and rent-regulated properties. Credit losses soared from $62m in the prior quarter to over $550m in the fourth quarter.

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This is the same NYCB that Signature Bank’s $34bn deposit base and $13bn CRE loan book. NYCB is not the only regional lender carrying CRE loan ratios that exceed their total capital by more than 300% but is among the most exposed.

Issue relating to commercial real estate property values will not go away any time soon. We will do well to get through 2024 with as few bank failures as we have witnessed since the dramas of this time last year. Shareholders are likely to take a further hit as loan/loss provisions rise. The economists predicting doom and gloom will make the headlines for sure but there remains a good chance that their worst forecasts will be wide of the mark.