Tough Start of the Week for Banks

Regional bank shares started sliding about 2.5% Tuesday as concerns grew over deeper capital requirements for midsize banks.

Minneapolis Federal Reserve President Neel Kashkari shared his opinion that he believes the proposals for capital requirements are not strong enough and that higher interest rates could cause trouble for small banks. He was also pessimistic that rate cuts would come anytime soon. Over the last few weeks, bank risk seemed to have decreased so the news rattled markets.

America’s largest banks did not receive great news either. Fitch ratings warned it might downgrade its ratings on large U.S. banks including JP Morgan Chase.

An analyst alerted markets that turbulence could come due to downgrades… which actually caused turbulence once again. The credit ratings are relied upon heavily by bond investors as well as mainstream equity investors.

The one thing that could provide a bounce back up across the entire banking sector is if the Fed cuts interest rates sometime in the next several months, or at the very least the Fed indicates soon that it is done with interest rate hikes for the foreseeable future.

The entire market was down over the first two days of this week, but Citigroup, JP Morgan and Bank of America fell even further than the broader markets.