Skip to main content

What's really going on with bank stocks

·2 mins

On Wednesday, the Federal Reserve removed a line from its meeting statement which had been used since last spring and stated that the US banking system was sound and resilient. This change raised concerns about the stability of the banking system, coincidentally as shares of New York Community Bancorp (NYCB) experienced a significant decline, closing down 38% on Wednesday and an additional 11% on Thursday. NYCB reported a surprise loss of $252 million in the last quarter and a significant increase in loan losses. This led to fears of contagion and a decrease in other bank stocks. The KBW Regional Banking Index closed down 6% on Wednesday, but experienced some relief with a 2% decline on Thursday. Western Alliance Bancorp and Zions Bancorporation also saw losses during these two days. Despite last year’s banking crisis, analysts believe that this weakness may pass as NYCB had previously managed to hold on to a majority of its deposits. However, the bank’s transition to comply with new regulations impacted its performance in the last quarter. Despite concerns, analysts do not feel that NYCB is on the brink of failure. The selloff in other regional bank stocks may be considered overdone, although it serves as a reminder of the ongoing credit normalization in the industry. Japan’s Aozora Bank also experienced a decline due to its bad loans tied to US offices. It may take some time for NYCB to recover its losses, but some analysts still recommend the stock as an opportunity.