U.S. banking regulators have been actively engaging with regional lenders following the challenges faced by New York Community Bancorp (NYCB), signaling ongoing concerns about the health of the banking sector. According to multiple sources, banking executives have had discussions with regulatory bodies such as the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp (FDIC), and state banking authorities. These conversations took place on and shortly after January 31, the day NYCB announced disappointing earnings and a dividend cut.
During these discussions, regulators inquired about various aspects of the banks’ operations, particularly focusing on liquidity and any potential impacts on deposit flows or customer concerns. However, executives from the banks involved indicated that they had not observed any abnormal activity. One executive characterized the discussions as more of a confirmation exercise for regulators rather than a response to specific issues.
The regulatory scrutiny on regional banks stems from lingering concerns following the failure of Silicon Valley Bank and other mid-size banks in the previous year, which raised apprehensions about the stability of smaller lenders. NYCB’s unexpected loss and significant provision for credit losses, particularly in its commercial real estate (CRE) portfolio, have intensified these concerns. Small banks hold a significant portion, nearly 70%, of all CRE loans, with pressure mounting due to continued office vacancies since the pandemic began.
Aside from NYCB, several other regional lenders have high concentrations in CRE loans, including Valley National Bancorp, Axos Bank, WaFd, and Bank OZK. WaFd Bank acknowledged that its CRE concentration level was a focus during recent regulatory discussions, especially in the context of its merger application with Luther Burbank Savings, which received approval on January 30. Valley National Bank’s CEO, Ira Robbins, expressed confidence in their commercial real estate portfolio and highlighted their long-standing relationship with regulators.
Although spokespeople for the FDIC and OCC declined to comment, a legal source familiar with regional banks mentioned that regulatory discussions also covered liquidity and capital positions, aiming to identify any potential areas of stress. These conversations, prompted by NYCB’s earnings announcement, reflect a heightened level of monitoring across various operational aspects to ensure banks’ resilience.
The repercussions of NYCB’s challenges have been significant, with the company’s stock experiencing a decline of over 50% since January. This ongoing pressure underscores the need for regulators to closely monitor the situation and maintain open communication with regional banks to address any emerging issues promptly.
In summary, the engagement between U.S. banking regulators and regional lenders underscores the sector’s ongoing challenges and the importance of proactive oversight to safeguard financial stability. As regulatory scrutiny intensifies, banks must prioritize transparency and robust risk management practices to navigate the evolving landscape effectively.
