America’s Regional Banking Stress Points To A ‘Periphery’ Problem

In the next few weeks we may see headlines like ‘Is America Greece?; ‘is it Italy?. The headlines won’t refer to wine, food and culture but to banks, because America now has a periphery bank problem. In the past three months the index of America’s regional banks has nearly halved. The speed (witness the demise of Silicon Valley Bank) and scale of what is happening is worrisome. At the height of the global financial crisis some 150 financial institutions – with total assets of nearly USD 500 bn – ceased to exist, though today a handful of American banks have expired, with assets of close to USD 600 bn up in the air.

With politicians and policymakers in Washington focused intently on the debt ceiling, the risk is that a periphery (regional and community banks) banks crisis overwhelms the debt debate and produces the sort of crisis that is consistent with the end of every Fed rate hiking cycle. My ‘breaking things’ thesis on the Fed remains intact.