Across the U.S., hundreds of small and regional banks are feeling stressed and may be at risk of failure. Of about 4,000 U.S. banks analyzed by the Klaros Group, 282 banks face stress from commercial real estate exposure and potential losses tied to higher interest rates. Most banks facing risks are categorized as small, or community, banks. Though the risk is less systemic compared to the Big Banks, community and regional banks are an important source of credit to local businesses and governments. “There’s no doubt in my mind there’s going to be more bank failures,” former chair of the U.S. Federal Deposit Insurance Corporation Sheila Bair told CNBC. Watch the video to learn more about the risk of commercial real estate, the role of interest rates on bank balance sheets and what it may take to relieve stress on banks — from regulation to mergers and acquisitions.

Chapters:
1:40 Chapter 1 – Stressed banks
4:56 Chapter 2 – Commercial real estate
6:21 Chapter 3 – ‘Unrealized’ losses
7:51 Chapter 4 – Rescuing banks
9:58 Chapter 5 – Regulation
11:57 Chapter 6 – Bank failures

Produced and Edited by: Andrea Miller
Reporting by: Hugh Son
Animation: Christina Locopo
Supervising Producer: Lindsey Jacobson
Additional Footage: Getty Images

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Why Hundreds Of U.S. Banks Are At Risk Of Failing…(read more)

LEARN MORE ABOUT: Bank Failures

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As the economic impact of the COVID-19 pandemic continues to unfold, a growing number of U.S. banks are facing significant challenges that could put them at risk of failing. According to experts, hundreds of banks across the country are vulnerable to collapse due to a combination of factors, including low interest rates, declining loan quality, and rising levels of debt.

One of the main factors contributing to the growing risk of bank failures is the prolonged period of historically low interest rates. In an effort to stimulate economic growth in the wake of the pandemic, the Federal Reserve has kept interest rates near zero for an extended period of time. While this has helped to spur borrowing and spending, it has also put pressure on banks’ profitability. With interest rates at rock-bottom levels, banks are finding it increasingly difficult to generate income from traditional lending activities.

Compounding the issue is the fact that many banks are facing declining loan quality as a result of the economic downturn. As businesses struggle to stay afloat and consumers face financial hardship, the likelihood of loan defaults and delinquencies has increased significantly. This has forced many banks to set aside larger reserves to cover potential losses, further squeezing their bottom line.

At the same time, banks are also grappling with rising levels of debt. In recent years, many banks have taken on significant amounts of debt to fund their operations and investments. However, the economic uncertainty brought on by the pandemic has made it harder for some banks to service their debt obligations. As a result, there is a growing concern that some banks may not be able to meet their debt obligations, leading to potential defaults and bankruptcies.

The combination of these factors has created a perfect storm for the banking industry, with some analysts warning that hundreds of U.S. banks are at risk of failing in the coming months. In fact, some experts predict that the number of bank failures could surpass the levels seen during the 2008 financial crisis, when hundreds of banks went under.

To mitigate the risk of bank failures, regulators and policymakers are closely monitoring the situation and taking steps to support the banking sector. For example, the Federal Reserve has implemented measures to ensure that banks have access to liquidity and capital to weather the storm. Additionally, regulators are conducting stress tests to assess the resilience of banks in the face of different economic scenarios.

Despite these efforts, the threat of bank failures looms large, posing a significant risk to the stability of the U.S. financial system. As the economic fallout from the pandemic continues to unfold, it is essential for banks to remain vigilant and for regulators to take proactive steps to safeguard the industry from systemic risk. Ultimately, the fate of hundreds of U.S. banks hangs in the balance, with the potential for far-reaching consequences for the broader economy.