Recently, there has been renewed tension in the U.S. banking sector, with the share price of the New York Community Bank (NYCB) in particular exceeding 25% on March 1, the lowest since 1997. The share price** was triggered by the bank's recently announced leadership changes and internal control issues. The New York Community Bank previously posted unexpected losses related to deteriorating credit quality and cut dividends. In addition, the bank had to write down $2.4 billion of goodwill as a result of discovering problems with the loan review process. The disclosure of these issues led to a number of rating agencies downgrading the bank.
The banking sector's problems are not isolated incidents, but are related to the broader economic environment. Since the outbreak of the pandemic in 2020, the U.S. commercial real estate market has been in turmoil. Due to the popularity of working from home, both demand and valuations for commercial real estate have been impacted. The financial problems of New York Community Bank reflect the instability of the commercial real estate market, which could have a ripple effect on other banks. According to the American Mortgage Bankers Association, a large number of commercial mortgages will mature in the coming years, with a total value of up to $560 billion, and the repayment of these loans could put further pressure on the banking sector.
The Federal Reserve has expressed concern about these developments in the banking sector and has begun to downgrade the regulatory ratings of financially stressed banks. As of January 2024, the U.S. banking sector has a whopping 29 trillion US dollars, of which the commercial real estate loans of small and medium-sized banks account for 69% of the industry. The crisis at New York's community banks has also reignited market concerns about regional banks in the United States.
Overall, the current challenges facing the U.S. banking sector are related to the turmoil in the commercial real estate market, loan review and risk management issues, which could have broader implications for the entire financial system.