Bank Crises

Well, the Fed has rescued Silicon Valley Bank and the big US banks have rescued First Republic Bank, for the meantime (remember that six months passed between the failures of Bear Stearns and Lehman Brothers in 2008). The Swiss National Bank has kicked the Credit Suisse can down the road, meaning its derivatives do not need to be unwound in a hurry, although the Swiss people will have to pay the price with an “inflation tax”.

Silicon Valley Bank failed due to investments in US Treasuries that went bad when the Fed raised interest rates sharply. What is not so widely known is that the US small regional banks have big exposure to the Commercial Real Estate (CRE) sector. JP Morgan has noted that almost $2 trillion of CRE loans are held at smaller banks, while around $0.8 trillion are held at larger ones.

Zero Hedge noted last week that real solvency risk facing the regional bank sector is their exposure to commercial real estate in general, and office buildings in particular. After residential real estate, malls, and hotels, it is now offices' turn to crumble. Office-building landlords are some of the biggest decliners among US real estate stocks. The S&P Composite 1500 Office REITs Index has dropped sharply back to August 2009 levels. Vornado is back to levels last seen in November 1996.

This decline will be putting pressure on the balance sheets of US small regional banks. US Commercial Real Estate is a trigger to keep an eye on.