Interview: Recent bank closures in U.S. expose weaknesses of regional banks, says Cathay Bank executive chairman

  • World
  • Saturday, 03 Jun 2023

by Xinhua writer Tan Jingjing

LOS ANGELES, June 2 (Xinhua) -- The recent wave of U.S. bank closures has left a trail, and exposed the weaknesses of several other regional banks, said Dunson Cheng, executive chairman of Cathay Bank, in a recent interview with Xinhua.

The abrupt collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank in the United States earlier this year stirred fresh anxieties about the security of the banking system.

Shares of U.S. regional banks continued to slide in May with PacWest leading the way.

"I believe the crisis has called into question whether some of the less capitalized and less profitable banks would want to stay in business. Many of these banks might decide to merge with or sell to stronger banks. So, the number of banks in the United States will continue to decline," Cheng told Xinhua.

Cheng said there were around 15,000 banks in the country when he started his banking career in the early 1980s. Now the number dropped to around 4,300.

U.S. banking regulators have swung into action to resolve the collapse of regional banks with a particular focus on depositors.

Cheng noted there are several risks confronting regional banks, including the shake of customer confidence in regional banks; the concern over whether the current slowdown in the U.S. economy would develop into a full-blown recession; and the significant impact of rapid technology advancement on banking.

Customers begin to ask whether their money is safe at their bank. So, it will take time for banks to regain customers' trust, he explained.

Following the recent bank closures, U.S. regulators are working to protect the interest of the depositors and ensure their needs are met.

"Many regional banks have a significant portion of their loan book in commercial real estate. Those are loans made to finance office buildings, retail centers, hotels, and apartments. Many of these loans were made when interest rates and unemployment were low, while occupancy levels and consumer spending were at high levels," Cheng told Xinhua.

As such, borrowers had enough income or profits to make payments to banks, he added.

"Now, the interest rates are almost 2.5 times higher. In a recession, businesses and consumer activities will slow down, causing income and profits to drop. Therefore, borrowers may have difficulty making payments to banks, resulting in an increase in bad loans, and that is the classical reason leading to bank failures," Cheng told Xinhua.

According to Cheng, technology will continue to be a major risk factor of the industry.

In older times, customers had to go to a branch to withdraw money or conduct other banking transactions.

"Nowadays, with a click on a computer, tablet, or mobile device, customers can transfer millions of dollars in seconds. That led to the closure of Silicon Valley Bank in one day," Cheng said.

Cathay Bank was founded in 1962 to serve the immigrant Chinese community. It is the oldest Chinese American bank in the United States.

Headquartered in Los Angeles, the bank has branch locations in nine U.S. states, a branch in Hong Kong, and three representative offices in Beijing, Shanghai and Taipei. It is among the 100 largest banks in the United States.

Calling banking a "high-leverage" and "high-risk" business, Cheng said it bears a higher degree of responsibility to serve its entire community where the bank is.

"If a bank grows too fast or ventures into new untested areas like crypto or venture capital, its risk level increases. Unfortunately, that led to the recent collapse of the three banks," he said.

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