The Banking Crisis Has Only Just Begun

OBSERVATIONS FROM THE FINTECH SNARK TANK

In an article titled Is the Banking Crisis Over? We Are About to Find Out, the Wall Street Journal identified three concerns that could determine if the banking industry is out of the crisis or still in one:

• Deposit costs. High interest rates have forced many banks to pay more to retain deposits (often via brokered deposits), while many institutions have seen deposits flee to higher-yielding money market funds.
• Bond losses. Rising interest rates depress the value of low rate securities and loans. Banks had more than $500 billion in unrealized losses on their securities at the end of March. Holding these assets can impact profitability because banks can’t lend those funds out or invest them at higher rates.
• Commercial real estate loans. Banks are anticipating losses in their commercial real-estate portfolios. Many mid-size institutions, with a heavy concentration of commercial real estate loans in their portfolios, could be impacted by the low occupancy rates in commercial real estate.

One bright spot for the banking industry is Americans’ rising appetite for credit card debt. The Credit Card Competition Act of 2023 could negatively impact banks’ ability to generate interchange fees and reduce the amount of capital they issue, however.