A strategist at Swedbank, a Swedish bank, has warned that the regional banking crisis in the US is spreading. After several bank failures, he stressed that Pacwest Bank, Western Alliance Bank, and First Horizon Bank have all been “subject to financial meltdowns.”
Swedbank on US Banking Crisis Spreading
Pär Magnusson, a fixed income strategist at Swedbank, a Swedish bank based in Stockholm, has warned about the spreading of the US banking crisis. He reportedly said:
After Silicon Valley Bank, Signature Bank, First Republic Bank and now potentially Pacwest Bank, Western Alliance Bank, and First Horizon Bank all having been subject to financial meltdowns, the proverbial cat will be very difficult to put back into the bag.
First Republic Bank was seized by regulators last week and most of its assets were sold to JPMorgan Chase. It was the biggest US bank failure since 2008. Silicon Valley Bank and Signature Bank collapsed in March. Following the seizure of First Republic Bank, shares of several banks, including Pacwest and Western Alliance Bank, plummeted.
“It is hard not to see the irony of regional US banks having successfully lobbied for less regulations during the Trump administration only to find that less regulations now is making them vulnerable to bank runs,” Magnusson opined.
The Swedbank strategist further cautioned:
The US 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.
“A general risk-off reaction is becoming increasingly likely, and you should position for this risk,” the strategist concluded.
Despite multiple bank failures, Federal Reserve Chairman Jerome Powell stated that the US banking system is “sound and resilient” as Fed officials raised interest rates by 25 basis points this week. The Federal Reserve recently revealed that 722 banks reported unrealized losses exceeding 50% of capital in the third quarter of 2022.
Do you agree with the Swedbank strategist that the US banking crisis is spreading? Let us know in the comments section below.
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