Up to 50 U.S. banks could fail in the next few years because of pressure from higher interest rates and operation problems, said Greg Hertrich, the head of U.S. depository strategies for Nomura, on Tuesday. Three U.S. banks—Silicon Valley, Signature and First Republic—collapsed last year, giving way to worries of additional failures.
If interest rates are cut this year, smaller institutions could see tightening profits because the lenders will need to offer customers higher rates to keep money in their accounts. “Those deposits are expensive and there is a concern about whether or not that funding will remain at a smaller institution once rates start coming down,” he said.
Additionally, geographic concentrations mean that the banks could be more at risk because of local economic problems. Operational decisions such as letting expense grow too much or taking greater risks could also lead to failure, Hertrich explained.
American currently has more than 4,500 banks, according to government data, but Hertrich expects that number to shrink to about 2,500 over the next decade due to industry consolidation. Additionally, he said, deals in the future are more likely to occur through market transactions rather than FDIC-led processes.
