Powell "Banks Are 'Sound and Resilient,' . . . hour later another West Coast bank bites the dust

In a press conference today, a day after shares in Pac West Bank fell 29%, Fed Chair Powell declared that Banks are “sound and resilient.”

Apparently investors were hoping he would express an appetite for at least one more bank bailout because 1-2 hours later shares in Pac West plummeted, falling another ~50%

2 hours ago Banks Are ‘Sound and Resilient,’ Powell Says
By Nicholas Jasinski
Federal Reserve Chairman Jerome Powell began his press conference with a discussion of the early 2023 banking turmoil, repeating language from the bank’s rate-setting committee’s statement about the banking system being “sound and resilient.”

I am not sure another bank bailout would be a good thing, but Powell’s words were unfortunate.




What is the trigger percentage for bad loans to assets on deposit?

I am not sure I understand your question correctly.

The most common stories do not mention any percentage of non performing loans (nor nonperforming loans at all.)

The general narrative, if it is to believed, is that PacWest’s problems occurred because of a need to write down its balance sheet, especially the current asset portion, which spiraled into a mass withdrawal of deposits.

The bloom came of the rose when

  • after spending weeks assuring the company it was safe, safe safe
  • it switched its narrative suddenly after Powell’s comments.

Banks are leveraged by design. The FDIC keeps track of the current standing of their loan portfolio. There is a set of trigger points with the final being insolvency due to too many bad loans on the books, with the write down leaving the bank unable to show assets within range to cover obligations (deposits). At play is also the current market value of the commercial real estate backing the loans.

Oh, Pac West has not been declared insolvent.
Investors (stock-buyers) no longer trust the stock will hold its value.

I would opine that questions about the solvency of its loan portfolio is what is driving down the stock value.

Well I have not mined its balance sheet the way some have but if by
“solvency of its loan portfolio” you mean “people defaulting on loans” I have not seen any discussion of that.

Nothing I have read suggests that Pac West made loans and the borrowers are failing to pay.

What has happened seems to be related to

  • buying long term bonds that lost there “fire sale” value, and
  • getting hip-deep in commercial real estate especially involving venture capital.

Falling long term bonds make sense as part of the problem. High commercial real estate exposure probably has caused additional issues with the portfolio.

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[quote=“e7alr, post:11, topic:244751, full:true”]
Falling long term bonds make sense as part of the problem. High commercial real estate exposure probably has caused additional issues with the portfolio.
[/quote] :100: (That is what I am reading.)

Commercial real estate “loans” by banks are often made in the form of “sale and leaseback.” The bank, or ts holding company literally buys the property and leases it to the occupant. (often reselling the property a short time later.)

I am not sure how frequently such a bank needs to restate its assets, but since Pac West was heavily into commercial real estate problems in the commercial RE market would hurt them more than most banks.

So essentially loan origination for the type of commercial properties found in the holdings of REITs. Of course REITs engage in due diligence before adding a property to the portfolio of the REIT. I would not be surprised that the current occupancy problems, in some of the major commercial real estate markets, have affected the market for REIT portfolio purchases and for the income payments of the REITs themselves. In such a market, the banks who originated the loans might not be able to find a market to sell the leased property contract.

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Yes, the bnaks eventually sell most/all properties to REITS (among other buyers) although . . . given some statements on Pac Wests website I suspect they hold on to more properties than most banks.