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Here’s what you need to know today…

1. Americans are getting into debt trouble.

2. Banks aren’t lending as much amidst rising risks.

3. Concerns about bank failures are back.

S&P 500: 4,954.23
1Mo: +4% | 1Yr: +19% | 5Yr: +83%

The market didn’t do much today amidst mixed corporate financial reports.

Americans are getting into debt trouble. The Federal Reserve Bank of New York’s quarterly report on Household Debt and Credit depicted surging missed payments and rising financial stress for consumers, particularly people under 40. Auto loan and credit card delinquencies are rising above pre-pandemic levels. The percentage of credit card debt in delinquency rose to 9.7% at the end of December, the highest since the beginning of 2021. Delinquencies for people under age 40 are surging faster than other age groups.

Banks have grown more cautious, cutting back on lending and making it more difficult for individuals and businesses to access funding. The Federal Reserve’s Senior Loan Officer Survey indicated a rising proportion of lenders who have increased credit score requirements and toughened lending standards.

High interest rates and growing delinquencies have investors again concerned about the banking system. Following the collapse of multiple large banks in early 2023, regulators have been monitoring bank stability closely. The latest concerns focus on New York Community Bancorp, which reported a surprise loss last week and slashed its dividend payments. The bank has struggled to meet minimum cash reserves mandated by regulators amid a new influx of assets and an unstable commercial lending portfolio. While it largely seems under control and an isolated incident, a tanking stock price and fear can manifest into real problems for banks.

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What causes a bank run?

When too many people try to withdraw their money from the same bank at the same, that's called a bank run. Banks don't typically hold much cash on hand. They take your deposits and lend that money out to clients. They also often buy investment assets rather than keep the money in cash. 

If the bank receives too many withdrawals too quickly, it must sell its investment assets to cover the withdrawals. If that doesn't cover the withdrawals, the bank may risk closure. No bank can survive a bank run, so customers must remain confident in the bank's financial stability. 

The Federal Deposit Insurance Corporation (FDIC) insures all deposits up to $250,000 per banking institution to provide a baseline of trust for depositors.