The Banking Relapse
Beginning in March of this year, financial institution Silvergate Capital was forced to shut down operations and liquidate assets following tighter credit conditions and decreased deposits. Afterward, a myriad of other banks such as Silicon Valley and First Republic also fell under, making way for several other regional banks to suffer the first public harm from the Federal Reserve’s implementation of higher interest rates. Since March, investors and consumers alike have begun approaching calmer stances to the financial industry, with several midsized banks leaving unscathed in the process. However, with the newest economic data available, it seems the Federal Reserve will raise rates once, and potentially twice, until year-end. This has left several analysts to speculate about the future of regional banks, and whether more turmoil may come to them.
In the next few weeks, banks are poised to release their second-quarter results for the month, and firms like Zion Bancorp and KeyCorp have begun to warn shareholders of a lower top line. With interest rates on the rise and regulation expansion, several banks that made it out of March’s turbulence may come under the gun once again. As customers retrieve their deposits and bank-owned security value becomes corrupted, similar government-backed mergers from larger banks can become prevalent. With rising costs from real estate, loans, and other assets that have lost value, these firms weakened earnings could show as early as this season. One analyst from the credit rating agency Fitch believes nearly half of the U.S.’s banks will be acquired by their competitors in the next ten years. Regardless of what comes of the financial industry, it is certain that banks and several other companies will be forced to adapt as the looming pressure from the Fed continues to affect most of the nation’s industries.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.