Last week, regional bank stocks took a hit as two US banks reported trouble with bad loans—Zions Bancorp in Utah and Western Alliance in AZ. The news shook this sector due to fears that it was the beginning of a more prevalent issue in this area of banking.
NFDIs are nondepository financial institutions, such as mortgage companies and private asset managers. These companies are avenues that borrowers use as an alternative to borrowing from a bank.
NDFIs are not as regulated as banks, which creates a risk that unknown leverage could affect various areas of the financial system, including banks that loan them money. The quick adverse market reaction to bank stocks on this news shows how sensitive investors are to the possibility that this is not a one-off problem.
