Pär Magnusson, a strategist based at Swedbank in Stockholm, has raised alarm about the rapid spread of the banking crisis in the United States. He stressed that after several bank failures, other banks such as PacWest Bank, Western Alliance Bank, and First Horizon may all be “subject to financial meltdowns.”
In his statement, he emphasized the growing concerns surrounding the situation, highlighting the need for immediate attention and action.
In a significant development, regulators seized First Republic Bank recently and subsequently sold a majority of its assets to JPMorgan Chase. This event marked one of the most substantial bank failures in the United States since 2008.
Before this, Silicon Valley Bank and Signature Bank had already experienced collapses in March. The aftermath of the seizure of First Republic Bank had a notable impact on the market, leading to a sharp decline in the shares of various banks, such as PacWest and Western Alliance Bank.
Magnusson commented on the situation, noting the irony that regional U.S. banks had advocated for reduced regulations during the Trump administration. However, he pointed out that this very reduction in regulations has left them susceptible to the risks associated with bank runs.
He expressed his growing concerns further: “The U.S. regional bank crisis is spreading. With every bank that succumbs to shrinking deposits and/or market distrust, the probability of more banks falling victim to similar fates grows. A vicious spiral may be about to take hold.”
Despite the occurrence of numerous bank failures, Federal Reserve Chairman Jerome Powell reassured that the U.S. banking system remains “sound and resilient” as interest rates were raised by 25 basis points this month.
However, it is worth noting that the Federal Reserve disclosed a concerning figure, revealing that in the third quarter of 2022, 722 banks reported unrealized losses surpassing 50% of their capital.