U.S. regional banks' financial reports provide a "reassuring pill": just an "isolated incident," not a "crisis 2.0".

The American regional banks that announced their performance this month collectively conveyed a message: the recent series of debt crises (stemming from corporate bankruptcies and suspected fraud) is not returning to the crisis situation of 2023. Although bankers and analysts did not deny the seriousness of the sudden appearance of bad loans and double mortgages on assets, they described these events as isolated fluctuations in the economy rather than indicating a broader systemic problem. Kenneth Vecchione, CEO of Western Alliance Bancorp (WAL.US), said in an analyst conference call on Wednesday: "We are satisfied with the quality of our assets. We believe that the situation will remain stable from now on." Since news about bad loans continued to emerge, the stock prices of these regional banks stabilized after a one-day market value plunge of $100 billion earlier this month. At the time, investors panicked due to suspected fraudulent activities involving a group of borrowers in the commercial real estate sector, impacting Western Alliance Bancorp and Zions Bancorporation, N.A. (Zions Bancorp), both regional banks with assets totaling about $900 billion that could have a significant impact on the entire system. The bankruptcies of Tricolor Holdings and First Brands Group further worsened the market's negative sentiment. Gregory Lyons, partner at law firm Debevoise & Plimpton, stated that investors' unease is partly due to the trauma left by the banking crisis of 2023. At that time, several large regional banks experienced a run on deposits, quickly damaging their financial condition. This time, the issues are more limited, and there are sufficient reserves to cushion the impact, he said. No Severe Turbulence Lyons said: "Unlike in 2023, there hasn't been that kind of strong surge this time. I think that, compared to 2023, the industry now has a more fundamental confidence." Unlike bank runs that typically erupt overnight, credit shocks often do not immediately threaten a bank's financial condition, as they have sufficient reserves. Ideally, banks have enough time and space on their balance sheet to address losses. First-Citizens BancShares Inc., a regional lender based in Raleigh, North Carolina, saw significant fluctuations in its profit data this quarter due to several bad loans, including an $82 million write-off due to the bankruptcy of auto parts manufacturer First Brands. The company's CFO, Craig Nix, stated that they also found pressure in the equipment financing sector but the situation has improved. Nix said in an investor conference call on Thursday: "Although we continue to monitor these portfolios, we have not identified any further trends that would raise broader credit quality concerns, and we believe we are well prepared." Exceeding Expectations Despite facing some setbacks, Western Alliance Bancorp and Zions Bancorporation, N.A. reported profits in the third quarter that exceeded analysts' expectations. Recent setbacks have prompted several banks to conduct a new round of reviews on their loan portfolios to identify any similar issues. Fifth Third Bancorp incurred bad debt losses of up to $200 million due to its association with the collapsed subprime auto lender Tricolor Holdings. The bank's Chief Credit Officer, Greg Schroeck, stated in a earnings conference call last week that they conducted a "loan-by-loan review" of collateral and found only two additional issues among 120,000 vehicles. This does not mean that the banking sector has completely eliminated credit risk. The entire economic sector is still under pressure, with persistent inflation squeezing low-income groups, and tariff negotiations bringing uncertainty to every link in the supply chain. Amerant Bancorp (AMTB.US) has delayed the release of its earnings report until next week, citing the need for more time to "complete customer review processes." This move has raised concerns about possible credit problems, leading to a more than 4% decline in its stock price on Thursday. The bank is a community bank in Florida with assets worth $10 billion. Stephen Scouten, an analyst at Piper Sandler, wrote in a report on Wednesday: "Clearly, we do not know whether this additional review time indicates a negative development, but given the bank's past performance in credit, it is hard not to be concerned."