$5,610,000,000 Fund Manager Says More US Bank Failures Incoming, Warns Liquidity and Liability Crisis Boiling Under the Surface

The chief executive of a $5.61 billion private investment firm warns the crisis in the banking sector is not yet over.

In a new Bloomberg Invest interview, Soros Fund Management CEO Dawn Fitzpatrick says that more bank failures are in sight as she believes the embattled sector is still flashing red flags under the hood.

“I think you are going to see more bank failures, likely in the small banks. So it’s not going to be the big headlines and the size of the failures we had so far. But I think there [are] more problems under the surface.

So you’ll see continued sales.”

According to Fitzpatrick, banks have to prepare for incoming regulatory measures, which she calls “pretty punitive.” Fitzpatrick says the Federal Reserve will likely introduce regulations that require banks to report their unrealized losses on assets such as government bond holdings.

“The Federal Reserve has said they’re doing a comprehensive review of bank regulation. I think what that’s going to look like is enhanced stress test, AOCI (accumulated other comprehensive income) exemptions I think are going to disappear. That’s [when] people did not have to mark things to market.

I think when it comes to liquidity management, there’s going to be a lot more scrutiny on that. 

One of the interesting things coming out of the (2008) financial crisis: there was a lot of focus on asset quality… and not as much on liability management. But now we know deposit assumptions were just wrong.”

At the height of the banking crisis, CNN reported that banks across the US were nursing $620 billion in unrealized losses due to the Fed’s tight monetary policies.

Banks that heavily accumulated US bonds and treasuries back when interest rates were close to zero took a hit in their portfolios amid the Fed’s aggressive interest rate hikes. The soaring interest rates significantly devalued those bonds as the government issued new debt securities that offer higher yields.

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