Hundreds of small regional banks in the United States are feeling stressed.
“You might see some banks fail or at least, you know, fall below their minimum capital requirements,” Christopher Wolfe, managing director and head of North American banks at Fitch Ratings, told CNBC.
Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found that 282 banks faced the dual threats of commercial real estate loans and potential losses from higher interest rates.
The majority of these banks are small lenders with less than $10 billion in assets.
“Most of these banks are not insolvent or even close to insolvency. They are just stressed,” Brian Graham, co-founder and partner at Klaros Group, told CNBC. “That means there will be fewer bank failures. But that doesn’t mean communities and customers won’t be affected by this stress.”
Graham noted that communities would likely be affected in more subtle ways than closures or bankruptcies, but that banks would choose not to invest in things such as new branches, technological innovations or new staff.
For individuals, the consequences of the failures of small banks are more indirect.
“Directly, it is of no consequence if they are below the insured deposit limits, which are currently quite high (at) $250,000,” Sheila Bair, former president of the Federal Deposit Insurance Corp., told CNBC.
If a failing bank is FDIC-insured, all depositors will be paid “up to at least $250,000 per depositor, per FDIC-insured bank, and per ownership category.”
Watch the video to learn more about commercial real estate risk, the role of interest rates on unrealized losses and what needs to be done to ease stress on banks – from regulation to mergers and acquisitions.
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