Deeper Regional Banking Crisis Unlikely after Triple Failure: Kiplinger Economic Forecasts
Lending could still contract, while financial regulators want more oversight of non-banks.
Our highly experienced Kiplinger Letter team produces regular forecasts on the banking and finance sectors to help you make better decisions about your investment and personal finances (Get a free issue of The Kiplinger Letter or subscribe.) You will always get them first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest forecast…
The failure of First Republic Bank has once again sparked concerns about the U.S. financial system. Bank regulators have taken control of First Republic and sold most of its operations to JPMorgan Chase & Co (JPM).
This marks the third failure of a large regional bank since mid-March. There are some parallels between First Republic and Silicon Valley Bank, both of which catered to high-net-worth individuals and had an unusually high share of deposits above the $250,000 Federal Deposit Insurance Corporation (FDIC) limit.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
As a result, many depositors moved their funds to larger banks when turmoil hit this spring. A crisis among regional banks still seems unlikely.
What’s next for the banking sector?
While headwinds will continue to plague the industry, vulnerability to rising interest rates varies greatly by bank. Those most at risk: Banks that benefited from a flood of customer deposits during the pandemic and used it to provide cheap mortgages to wealthy customers or buy long-term bonds. But no matter what, bank lending will contract, another source of drag on U.S. economic growth this year.
Financial regulators want to toughen oversight of nonbanks. The FSOC (Financial Stability Oversight Council) has announced a series of proposals to strengthen the process by which investment managers, insurers, hedge funds and other nonbank financial firms are designated as systemically important. For now, the label, which allows for extra oversight, applies only to the nation’s largest banks.
What rules could change?
A few Trump-era changes would be reversed, specifically, 2019 requirements that forced regulators to wait several years before designating a particular institution as systemically important. The new rules introduce a variety of metrics for regulators to determine whether a company’s distress could threaten U.S. financial stability.
Nonbank financial companies are opposed, arguing the rules should focus on specific activities rather than companies. Three large insurers — AIG, MetLife (MET) and Prudential — plus GE Capital (GE) were initially considered systemically important after the 2008 financial crisis. All four have since been freed from that status.
This forecast first appeared in The Kiplinger Letter. Since 1923, the Letter has helped millions of business executives and investors profit by providing reliable forecasts on business and the economy, as well as what to expect from Washington. Get a free issue of The Kiplinger Letter or subscribe.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Rodrigo Sermeño covers the financial services, housing, small business, and cryptocurrency industries for The Kiplinger Letter. Before joining Kiplinger in 2014, he worked for several think tanks and non-profit organizations in Washington, D.C., including the New America Foundation, the Streit Council, and the Arca Foundation. Rodrigo graduated from George Mason University with a bachelor's degree in international affairs. He also holds a master's in public policy from George Mason University's Schar School of Policy and Government.
-
Social Security Tax Limit Jumps 4.4% for 2025
Social Security The Social Security Administration has announced significant changes affecting millions as we approach a new year.
By Kelley R. Taylor Published
-
Social Security COLA Is 2.5% for 2025: What to Know
The 2025 Social Security COLA, tax wage cap and how much you need to earn to qualify for SS credits has been announced by the Social Security Administration.
By Donna LeValley Published
-
The Big Questions for AR’s Future
The Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
By John Miley Published
-
China's Economy Faces Darkening Outlook
The Letter What the slowdown in China means for U.S. businesses.
By Rodrigo Sermeño Published
-
Should We Worry About the Slowing U.S. Economy
The Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
By David Payne Published
-
Kiplinger Special: How Businesses Should Budget for 2025
Kiplinger Forecasts From fuel to AI software subscriptions, here's what you can expect to pay next year.
By John Miley Published
-
Intel Braces for an Even Tougher Road Ahead
The Kiplinger Letter Amid a long, costly turnaround, Intel resets expectations again. Its new woes raise questions about U.S. industrial policy and global chip competition.
By John Miley Published
-
Car Prices Are Finally Coming Down
The Kiplinger Letter For the first time in years, it may be possible to snag a good deal on a new car.
By David Payne Published
-
New Graduates Navigate a Challenging Labor Market
The Kiplinger Letter Things are getting tough for new graduates. Job offers are drying up and the jobless rate is increasing. Are internships the answer?
By David Payne Last updated
-
Kiplinger Special: The Long-Term Future of the U.S. Economy
The Kiplinger Letter Kiplinger's report into what it will take the U.S. to maintain a healthy economic growth rate.
By David Payne Published