KRE bank index chart
KRE bank index

It was around this time last year that US banking worries began to percolate. That ultimately catalyzed into something of a crisis in March as several banks were wiped out including Silicon Valley Bank, First Republic Bank, Silvergate Bank and Signature Bank.

Others teetered as well and remain badly damaged.

The problem is that the Treasuries they hold are now worth much less than what they paid for them. That's fine if they hold the bonds to maturity but if they're forced to raise capital, then they have to take the losses and that sets off a spiral.

The Fed rolled out a program to help them but now they're pushing banks to use the discount window instead.

At the same time, banks have considerable exposure to office real estate and that sector is terminally damaged by work-from-home policies. That's led (and will continue to lead) to defaults and bank losses.

The issue is back in focus because yesterday, New York Community Bancorp cut its dividend, citing stress in commercial real estate. That bank took on some of the assets of failing banks last year and that boosted it up to higher capital thresholds, so it might be idiosyncratic.

NYCB stock
NYCB stock

However it might just be a sign of things to come. Tokyo-based Aozora Bank plunged more than 20% after warning of a loss tied to US commercial property. In Europe, Deutsche Bank also raised its US real estate provisions to $133 million in the fourth quarter from a year earlier.

There has been a strong bid in bonds in the past two days and this could certainly be part of it.

second banking crisis