On Thursday, investors became more on edge over the fate of regional banks. This was serious stuff, but the sharp declines in stock price for Western Alliance Bancorp and Zions Bancorp pretty much raised big red flags. Both banks saw a more than 10% drop in their stock prices. This decline followed some disturbing disclosed loan concentrations that raised alarm bells similar to what we saw during the 2023 regional banking crisis.
One of those banks now embroiled in this mess, Western Alliance Bancorp, anticipates a whopper of a loss—$60 million. This extremely distressing sum represents lending to a failing business that has even been accused of defrauding them. To help offset its losses, the bank has brought a lawsuit against the borrower, trying to recoup its losses. This unexpected development has left investors wondering what the bank might be hiding about its financial soundness and risk management.
Zions Bancorp was equally as bad, suffering its worst single-day stock drop in over half a year. Like Western Alliance, Zions Bancorp has common equity capital concerns. Both banks have come under fire for loans they’ve made to businesses implicated in defrauding taxpayers. Investors are understandably skittish as these situations expose systemic weaknesses from within the regional banking industry.
Broader Implications for Regional Banks
What those recent reactions to the market go much further than just Western Alliance and Zions. JPM then prepared to absorb a $170 million hit from bad loans associated with Tricolor. Tricolor’s bankruptcy declaration last month was the final straw resulting in this financial blow. On the heels of this market entrance, First Brands—an existing auto-parts supplier—filed Chapter 11 in the same time period. To make matters worse, Jefferies Financial Group disclosed having at least $45 million in exposure to First Brands.
The cumulative effect of all these occurrences has set off a chain reaction through the banking system. Investors have begun to worry that these problems will cause a ripple effect across markets and contribute to systemic financial instability. The huge stock drops of these regional banks have led to questions on whether they can survive through continued economic pressures.
The Echoes of Past Crises
It’s a familiar picture, like the 2023 regional banking crisis. In those days, such fears caused bank runs across the nation, causing incalculable damage to various banks through panic withdrawals. Investors are reading every word with a fine-tooth comb. As a result, many are already doubting that these banks have sufficiently girded against future financial disaster as a result of their lending practices.
Market analysts are sounding alarms as they assess the potential affects of these moves on the health of regional banks. Because of this interconnectedness, instability in one facet of our financial institutions can spread like wildfire.