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| This is where I will hedge my next comments by saying my perspective from an IA community bank. I understand a lot of banking but I'm not running a regional and I'm an Ag guy.
There are 2 major risks in banking. Interest rate risk and credit risk. Interest rate risk has softened a lot of banks and will be a drag on earnings for a bit. I think 2023 was the peak and each year forward will improve as loans reprice and bonds roll off. Interest rate risk killed a couple last year but they were sick puppies. It may kill more before this ends.
Mr Powell is concerned with credit risk, specifically CRE. With good reason as credit risk has killed far more banks historically and I see it as the greater risk currently for almost all banks. SVB was very unique historically speaking and shockingly mismanaged their interest rate risk.
But to your point, if a bank is weakened due to interest rate risk, then of course they are more vulnerable to credit risk.
Most boring vanilla community banks with a lot of bonds will likely see 2023 as their earning bottom. Time passes, loans reprice and bonds rolloff. But credit risk can always derail things in banking. | |
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There will be bank failures caused by commercial real estate losses
