The United States is witnessing an escalating banking crisis, according to Pär Magnusson, a strategist at Swedbank, a renowned Swedish bank. He expressed concern about the spreading financial instability after a series of bank failures, including Pacwest Bank, Western Alliance Bank, and First Horizon Bank.
Magnusson shed light on the precarious state of the U.S. banking industry, pointing out the financial disarray that has affected several major banks, such as Silicon Valley Bank, Signature Bank, and First Republic Bank. He warned that the unfolding crisis is like a cat let out of the bag, difficult to control and unlikely to be resolved easily.
The seizure of First Republic Bank by regulators marked a significant moment in this crisis. It resulted in the sale of most of its assets to JPMorgan Chase, making it the most substantial U.S. bank collapse since the 2008 financial crisis. Silicon Valley Bank and Signature Bank, which collapsed in March, were the initial triggers that have led to a domino effect in the banking sector. Following the First Republic Bank’s seizure, a significant drop in the share prices of various other banks, including Pacwest and Western Alliance Bank, was reported.
Magnusson highlighted the irony of the predicament faced by regional U.S. banks. These banks, which had lobbied vigorously for regulatory relaxation during the Trump administration, are now falling victim to the very lack of regulation they championed.
The crisis facing regional U.S. banks is intensifying and spreading, warned Magnusson. Each bank that succumbs to the financial turmoil increases the likelihood of a similar fate befalling others. The domino effect is a very real possibility, especially among other banks across the United States. He urged preparedness for a general risk reaction, which he believes is increasingly probable.
In stark contrast, Jerome Powell, Chairman of the Federal Reserve, assured that the U.S. banking system remains healthy and robust despite the recent failures. This assurance came as Fed officials announced a 25 basis point increase in interest rates. Nevertheless, recent data from the Federal Reserve disclosed that in the third quarter of 2022, over 700 banks reported unrealized losses exceeding half their capital, a revelation that might cast a shadow on Powell’s optimistic outlook.
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