A strategist at Swedbank, a prominent Swedish bank, has expressed concern regarding the regional banking crisis in the United States, speculating that it is spreading and may result in additional bank failures. Recent financial collapses have impacted financial institutions such as Pacwest Bank, Western Alliance Bank, and First Horizon Bank, indicating the gravity of the situation.

The warning follows significant bank failures in the United States. In one notable instance, regulators seized First Republic Bank, resulting in the sale of the majority of its assets to JPMorgan Chase. This event represented the highest US bank failure since the 2008 financial crisis. In addition to the failure of First Republic Bank in March, Silicon Valley Bank and Signature Bank also failed, exacerbating the banking crisis.

The market has been reverberating with the effects of these failures. Following the seizure of First Republic Bank, the stock prices of a number of institutions, including Pacwest Bank and Western Alliance Bank, fell dramatically. This indicates a loss of investor confidence and adds to mounting concerns about the US banking system’s stability.

Federal Reserve Position

Jerome Powell, chairman of the Federal Reserve, sought to allay concerns by asserting that the US banking system is “sound and resilient.” Despite the numerous bank failures, the Federal Reserve remains confident in the overall stability of the system. Recently, the Federal Reserve increased interest rates by 25 basis points, demonstrating their confidence in the system’s ability to withstand the storm.

The Federal Reserve disclosed that 722 banks reported unrealized losses exceeding 50% of capital in the third quarter of 2022. This revelation casts doubt on the reassurances provided by Powell, as it raises questions about the actual scope of the difficulties facing the US banking industry.

As the regional banking crisis in the United States continues to develop, concerns about its potential spread and the likelihood of additional bank failures increase. The strategist at Swedbank warns of a “vicious spiral,” implying that the repercussions could have far-reaching effects. While Federal Reserve officials maintain faith in the system’s resilience, accumulating unrealized losses raises legitimate concerns about the stability and future of the U.S. banking sector.