- Smaller US regional banks are seen as safer than universal banks, but recent collapses have revealed risks.
- Some banks have ignored the traditional model of collecting deposits and making loans to specialize in lucrative diversifications.
- Washington's 2018 bank relief law raised the threshold for stricter regulation, allowing some of these riskier banks to slip through the cracks.
- Two recently collapsed banks had a high level of uninsured deposits and big unrealized losses on securities.
- The Fed may slow the pace of rate hikes to reduce systemic risk, but this could also put pressure on net interest margins and profits.
US regional banks: lax regulation brings heartache to the heartlands
Recent collapses of smaller US regional banks reveal risks of ignoring traditional banking models and specializing in lucrative diversifications, while lax regulation allows some banks to slip through the cracks.