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Peter Davis

An writer at FOMOdrive

  • Jun 19, 2023
  • 2 min read

Thousands of banks could fail in the US

An expert has warned that there could be thousands of insolvent banks in the United States.

Investors were advised by Allianz to get ready for another "financial catastrophe".

Warning of potential bank failures, billionaire Bill Ekman has raised concerns.

Amit Seru, a professor at Stanford Graduate School of Business, reported that approximately half of the 4,800 banks in America are in dire straits.

He warned that a combination of rapid rate hikes, alterations in the way work is organized, and the potential for a recession could lead to a credit crisis of a magnitude not experienced since 2008.

The professor noted that the rapid growth in rates of commercial real estate loans, which total $2.7 trillion in the US, could lead to a high risk of default. This amount is approximately one quarter of the assets of the average bank, meaning that "much of the US banking system is potentially insolvent."

Allianz, a German insurance company, has warned that the probability of a sharp sale of assets in the market has increased due to bank failures in the US, market turbulence, and economic instability in the face of rising interest rates.

Those who have purchased assets using borrowed money may not be able to pay back their loans. Allianz has warned investors to be ready for a period of market adjustment and the possibility of a new "financial crisis".

Allianz's main worries include misestimation of corporate credit risk, issues with non-bank financial intermediaries such as hedge funds and pension funds, as well as the "vicious circle" in regional banks in the US and the commercial real estate market.

Bill Ekman, the founder of Pershing Square hedge fund, has cautioned that the entire US regional banking sector will be in danger if the Federal Deposit Insurance Corporation (FDIC) does not take steps to secure the deposits of all its customers.

If a bank fails, customers cannot be held responsible for any deposits over $250,000 as the FDIC guarantees them.

If the FDIC had provided a temporary guarantee on deposits while the new guarantee regime was being implemented, Ackman believes that the recently collapsed First Republic Bank would not have failed.

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