Western Alliance Bank signage is displayed at the company’s headquarters in downtown Phoenix, Arizona, April 27, 2023.
Patrick T. Fallon | AFP | Getty Images
When you can’t repay a bank loan, it’s painful, but probably not for the bank.
But when tens of thousands of people with good credit scores can’t do so, it raises concerns about the health of the economy.
And when it comes to companies failing to repay very large loans, leading to charges – that is, money that the bank counts as a loss because it has given up on recovering it – and bankruptcies, it’s time for everyone to put on their detective hats.
First Brands, an auto parts maker, and car dealership Tricolor Holdings filed for bankruptcy in September. Big banks like Jefferies, UBS And JPMorgan was exposed to either of the two companies.
“Questions are now being raised about how the demise of a relatively unknown auto parts supplier has spread throughout the banking and money management industry, where billions of dollars are potentially involved in the collapse,” wrote CNBC’s Hugh Leask.
Concerns intensified in the United States on Thursday when two regional American banks raised problems with their loans.
All of the above events could be isolated incidents unrelated to each other.
But “when you see one cockroach, there are probably others,” JPMorgan CEO Jamie Dimon said during the bank’s earnings conference call earlier this week.
And bad loans don’t stay in the banking sector. The 2008 global financial crisis – which saw millions of people laid off and economies plunged into recession – was partly triggered by the subprime mortgage crisis, in which, put very simply, people couldn’t pay their mortgages.
Then the cockroaches broke free.
What you need to know today
And finally…
Bank Lending Concerns Make It Easier for Fed to Cut Interest Rates, Jim Cramer Says
As news of the bad bank loans rattled Wall Street, CNBC’s Jim Cramer said the developments would pave the way for the Federal Reserve to lower interest rates – a move that investors of all stripes had been hoping for.
“Today was a really ugly day, but at least we finally have something that can make the Federal Reserve want to cut interest rates sooner rather than later: bank lending gone bad,” he said. “Nothing motivates the Fed to act faster than credit losses, because they are a definitive sign that the economy is going south.”
-Julie Coleman
