“US Regional Banks Facing Threats of Recession and Default Amidst Rising Interest Rates and Downgraded Credit Ratings”

A little more than a month has passed since the bankruptcy of Silicon Valley Bank, but Armageddon in the US financial system has not happened.
Good people, what’s going on? What, there will be no kina? Where is the crisis? Where is the promised show?

Has everything bad happened ALREADY, or is it just a respite now?

The situation is twofold.

▪️ On the one hand, the FRS and the Ministry of Finance, not only with words, but also with actions, made it clear that “they will not leave their own in trouble.”

▪️ On the other hand, rising interest rates pose a threat of recession, defaults and a wave of bankruptcies in the corporate sector.

What causes concern?

We talked with you not so long ago – rating agencies will be the next to enter the battlefield. Voila – they are already here.

Rating companies have launched a campaign to revise credit ratings.

According to Barclays Plc, in the US alone, about $11.4 billion worth of bonds were downgraded to high-yield (junk) status in Q1.

With a high degree of probability, by the end of 2023, this figure can jump to $80 billion or about 2.2% of BBB corporate bonds.

Prospects are so-so, to put it mildly …

And what about regional banks?

A further decline in the number of deposits will most likely lead to the fact that financial institutions will be forced to increase interest rates on deposits, even when the Fed takes a break in tightening monetary policy.

As a result, the net interest margin of regional banks is likely to eventually fall as well.

To compensate for losses and reduce risks, banks are likely to continue tightening lending conditions.

The problem is that in most US counties small and medium financial institutions account for 90% of loans issued to small businesses.

Conclusion

Even despite the support from the regulators, given the more than possible continuation of the growth of rates, the US economy will slow down.

Sooner or later, the markets will also realize the snowball of problems and begin to get rid of risky assets.

So, most likely, the process of ruin or absorption for a penny of US regional banks will continue.

PS By the way, what about the long-suffering First Republic Bank (NYSE:)? He just reported back.

• If we immediately jump to the conclusions, after analyzing its balance, there is a strong feeling: the question of its existence is only a matter of time.

• If before the report on Monday its shares grew by as much as 12%, then on the postmarket after the report we see minus 22%.

• The bank’s capitalization has fallen from $30 billion before the crisis to $3 billion. And this decline is likely to continue.

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