The recent sharp decline in the stock of New York Community Bancorp has reignited concerns in the banking sector, reminiscent of the crisis that unfolded last year. The unexpected deep loss announced by the American regional bank this week caused a significant drop in its shares in just one day, hitting their lowest value in 25 years, as reported by CNN. This has raised fears of a potential consolidation in the banking sector.
The plunge in the bank’s shares has brought back unpleasant memories of the events of the previous year. In a span of less than two months, three major American banks collapsed, starting with First Republic Bank in early May, followed by the downfall of Silicon Valley Bank (SVB) and Signature Bank at the onset of the banking crisis in March.
Following the release of the quarterly results, New York Community Bancorp’s shares plummeted by 38% in a single day this week, with an additional 11% drop the following day. According to the bank’s CEO, Thomas Cangemi, the poor quarterly results are linked to the acquisition of deposits and loans from the failed Signature Bank last year. This decline in shares has also had a ripple effect on the stocks of other regional banks, although the impact is significantly smaller compared to the crisis of the previous year.
Experts like Rick Rieder from BlackRock have commented on the situation, predicting a potential consolidation in the banking system. The International Monetary Fund (IMF) conducted a new, stricter stress test last year after the troubles faced by banks like Silicon Valley Bank, Credit Suisse Group, and two other American banks. The IMF warned in a report published in October that around five percent of banks worldwide could face difficulties if central bank interest rates remain higher for an extended period, despite the recent easing of turbulence in the sector.
The IMF adjusted last year’s stress test to assess the impact of its baseline economic scenario, which includes long-term higher interest rates, and the possibility of consumers withdrawing deposits. Their „strict but plausible“ scenario envisions a global economy entering stagflation.
Weak banks are identified as those whose capital levels fell more than five percentage points below the minimum threshold of seven percent in the IMF stress test. According to the baseline scenario, 55 banks representing about four percent of global assets were deemed weak. In the stagflation scenario, this number increased to 215 banks, holding around 42 percent of assets.
The potential consolidation in the banking sector and the ongoing challenges faced by banks highlight the need for vigilance and proactive measures to ensure the stability and resilience of the financial system in the face of economic uncertainties.