U.S. Regional-Bank Credit Risk Reemerges: Will SVB-Era Panic Return?

Banks That Extended Credit Now Shoulder Losses
Shares of Zions and Western Alliance Plunge
Fears of a Repeat of 2023 Bank Failures

Concerns are mounting that a wave of bankruptcies among U.S. auto-parts makers and lenders could crystallize into a regional-bank–driven credit scare. Each new impairment surfacing above the waterline risks a “domino effect,” inflicting collateral damage on otherwise sound loans. The fear is that strain could spill over from regional banks and nonbanks into the core of large commercial and investment banks, which are tightly coupled through funding chains.

Auto-parts and consumer-lender bankruptcies

According to Bloomberg (local time) on the 21st, Zions Bancorporation—ranked 30th by assets on the Federal Reserve’s list of large banks—said on the 16th that its subsidiary California Bank & Trust recognized a loss on $50 million of commercial and industrial loans.

Western Alliance, ranked 31st, reportedly failed to enforce its senior lien on Cantor Group. Last month, consumer auto lender Tricolor Holdings filed for bankruptcy, prompting regional bank Fifth Third to book a $200 million charge. The bankruptcy of auto-parts maker First Brands Group forced major Wall Street institutions including Bank of America (BoA) to shoulder as much as $10 billion in debt.

Zions and Western Alliance emphasized that the absolute size of the losses was limited, but skepticism is deepening. The combined market capitalization of 74 major U.S. banks fell by 1s3.64% on the 16th alone, dragging the broader New York market lower. Shares of Zions (-13.14%) and Western Alliance (-10.83%) plunged, chilling sentiment. The back-to-back failures at First Brands and Tricolor have rekindled concerns about fragility at regional lenders. Historic episodes include the savings-and-loan crisis of the 1980s, the 2008 financial crisis, and the 2023 collapse of Silicon Valley Bank (SVB).

Private credit as a latent detonator

Bank stocks rebounded broadly on the 17th in New York, suggesting tentative stabilization after several analysts argued the stress would not metastasize into a systemic financial crisis. Mark Zandi, chief economist at Moody’s, said, “There are no signs of a systemic problem among regional banks,” adding that overall credit quality remains solid, notwithstanding pockets of weakness.

UBS’s strategy team likewise argued that U.S. equities and financial markets rest on a robust macro backdrop and that current credit-risk fears are overstated. RBC Capital Markets said the selloff in Zions and Western Alliance looked excessive, noting that regional-bank balance sheets have strengthened materially since 2023. Oppenheimer upgraded Jefferies from “market perform” to “outperform.”

Even so, underlying credit issues remain unresolved, fueling concerns that similar episodes could resurface at any time. Mike Mayo, senior bank analyst at Wells Fargo, warned that allegations of losses and fraud at regional banks point to eroding risk management and underwriting discipline. “Today’s impairments are the consequence of lax lending culture built up during the credit-expansion phase,” he said, underscoring how the Federal Reserve’s pandemic response—ample liquidity and ultra-low rates—loosened underwriting across bank credit and other lending.

Dimon’s ‘cockroach theory’ put to the test

JPMorgan Chase Chairman Jamie Dimon recently remarked that the credit cycle had remained in an accommodative phase for too long and that weak links are now surfacing. On the 14th, citing First Brands’ bankruptcy, he said, “If you see one cockroach, there are probably more,” suggesting more distressed borrowers—and more exposed banks—may emerge. On CNBC the same day, Dimon added, “We’ve had a 14-year credit bull market,” calling Tricolor’s bankruptcy an early signal of excess in credit markets.

Analysts also warn that light-touch oversight in private credit could become a detonator for broader financial stress. Nonbank private-credit managers—unlike banks—do not take retail deposits; they raise funds primarily from a limited pool of institutional investors such as pension plans and sovereign wealth funds. Because loans are bilateral and private, even regulators struggle to gauge the aggregate size of impairments or where risks are concentrated. Peter Coyle, senior analyst at Fave Finance, cautioned that opacity in nonbank private credit is “excessive,” adding that markets can react even when problems are not yet explicit.

A deeper concern is that a prolonged economic downturn would swell the ranks of bankrupt borrowers, impair regional banks, and eventually weigh on large financial institutions as well. Wells Fargo noted that while the biggest banks are diversified enough to absorb stress, smaller banks have far less latitude when trouble strikes.