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GAVEKAL SEES LOW RISK OF US BANK CRISIS DESPITE RECENT SHOCKS

Investors had a scare last week as some nasty surprises in the U.S. regional banking sector sent global bank shares lower, but Gavekal Research believes the systemic risk remains small.

"The chance of U.S. commercial banks going bust like Silicon Valley Bank, First Republic and Silvergate in early 2023 is low," writes Gavekal U.S. analyst Tan Kai Xian.

Firstly, Tan notes that disclosed losses are small relative to the balance sheets of the exposed banks, Fifth Third Bank FITB.O and Zions Bancorp ZION.O.

Secondly, Tan says there was no sign of deposit flight from the U.S. banking system, unlike 2023.

And, if credit losses were to threaten some of the smaller banks, Xian believes that bigger banks would be likely to step in and absorb the pain, as they did in 2023 with the collapse of SVB, Silvergate and First Republic.

The largest 13 U.S. banks have around $200 billion of excess capital, Xian says, citing JPMorgan data.

"With regulators drafting new - almost certainly easier - bank stress test standards and proposing to relax capital requirements for community banks, that excess capital figure is likely to rise, giving healthy banks more resources to buy out weaker institutions," writes Xian.

"In short, while investors should remain on the alert for more signs of stress in the U.S. credit space, the probability of a U.S. banking crisis remains low, at least for now."

(Samuel Indyk)

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