In a new report, CNBC says that several experts that it has talked to have said that the instability in the US financial sector which followed the collapse of several banks in March is far from over.
In interviews with a dozen executives, advisors, and investment bankers, the told the outlet that it is very likely that rising interest rates, commercial real estate losses, and increased regulatory scrutiny will all add to the pressures on regional and mid-sized banks, and that will produce a wave of mergers.
The experts warned that over the next few years, these mergers, whether due to market forces or to regulatory intervention, will lead to many of the nations 4,672 lenders being taken over by larger institutions. The report quoted one expert as saying, “What is coming will likely be the most significant shift in the American banking landscape since the 2008 financial crisis.”
One co-president of a top-six US bank, who chose not to be identified said, “You’re going to have a massive wave of M&A among smaller banks because they need to get bigger. We’re the only country in the world that has this many banks.”
Brian Graham, a banking veteran who cofounded advisory firm Klaros Group, noted that for at least 15 years, “US banks have been awash in deposits and with low rates, and it cost them nothing,” however that situation has, “clearly changed.”
Another chief executive predicted that banks which survive will do so by “being the buyer rather than the target,” noting, “we could see over time fewer, larger regionals.”
Chris Wolfe, a Fitch banking analyst who previously worked at the Federal Reserve Bank of New York echoed that prediction, predicting that half of the nation’s banks will be absorbed by competitors over the next decade.
Over ten chaotic weeks earlier this year, several banks in the US with combined assets in excess of $500 billion collapsed. The suddenness of their failures in quick succession fueled fears that the US financial system was on the cusp of another banking crisis similar to the financial crisis of 2008.
The crisis began in March, after crypto-lender Silvergate bank announced it would voluntarily liquidate in response to the losses it endured due to the failure of crypto-exchange FTX. Within two days, US regulators stepped in and took over the tech and start-up focused bank Silicon Valley Bank. Shortly after that, First Republic Bank was on the cusp of collapse, and received a $30 billion cash infusion in the form of unsecured deposits from several major Wall Street banks. However the rescue infusion was not enough to save it and it ultimately fell and was acquired by JPMorgan.
Regional lender PacWest Bancorp then fell in May, after it announced it was in talks with potential partners and investors regarding strategic options after its stock plunged 60%.
Despite claims by regulators that the industry is financially sound, analysts continue to raise concerns over the economic fundamentals within the sector, and worries that more collapse may be coming.
