Life really does begin at 40, but for Silicon Valley Bank (SVB), that’s where it ended. It’s been a year since the major financial institution collapsed after investors withdrew over $42B in mere hours. When the dust settled, five other banks holding assets worth $548B went under — leading to the second and third-largest bank failures in US history.

What’s left in the vault? Since then, investors’ optimism in banks has improved, especially among large financial institutions. The Financial Select Sector SPDR FundXLF

has rallied over 29% to an all-time high — slowly trickling down to once-downtrodden regional banks. After the crisis, the SPDR S&P Regional Banking ETFKRE

lost nearly half its value. It has regained over half of that, but the recovery hasn’t been smooth.

• In recent weeks, New York Community BancorpNYCB
  reported problems with its commercial real estate (CRE) portfolio — which has led to fresh anxieties over the health of regional banks.
• Despite its credit being downgraded to junk and its stock falling by more than 60% year-to-date,NYCB
  managed to raise more than $1B in capital to shore up its balance sheet, something its fallen comrades failed to do.

Sounding the alarm bells

Unfortunately, it might be too soon to celebrate the fact that America only saw five bank failures last year (rather than the 25 in 2008). Treasury Secretary Janet Yellen is warning us that there will likely be more bank failures as losses mount. Regulators are singing the same tune, especially as CRE risks remain considerable.

• The number of banks on the Federal Depository Insurance Corporation’s “Problem Bank List” rose to 52 last quarter, up eight from the previous quarter — which represents more than 1% of the 4.5K insured institutions in the US.
• Fed Chairman Jerome Powell says that the Fed had identified and engaged banks with high CRE exposure — adding that there “will be bank failures, but not the big banks” (Fortune).

What’s at risk? US office vacancies are at a record high of 19.6% and are expected to climb into 2025. A working paper by the National Bureau of Economic Research warns that as many as 300 regional banks could go under this year due to CRE-related distress — but whether the Fed or other investors will (or need to) intervene is still up in the air.