Before SVB Financial's first anniversary, another small bank in the United States has collapsed. Is the "March drama" of the Federal Reserve starting early?

Less than a year after the collapse of SVB Financial, another bank has issued a warning of a collapse: when will the Federal Reserve slow down QT as liquidity dries up?

Before the market opened on January 30th, Eastern Time, the fourth-quarter earnings report of New York Community Bank Limited (NYCB) showed an unexpected loss of $260 million, while analysts had previously expected a profit of $206 million. The loss per share was $0.36, and the earnings per share (EPS) turned from profit to loss compared to the same period last year. At the same time, NYCB announced a reduction in dividends by 5 cents, far below the analysts' previous expectation of maintaining dividends at 17 cents.

After the release of the earnings report, NYCB opened down 42.6% and fell more than 46% in the early trading, closing down 37.7%. This is the largest intraday and closing decline since the company went public in November 1993, far exceeding the largest decline during the global financial crisis in 2008, completely wiping out the gains from last year's "SVB Financial crisis".

From the financial data, the biggest reason for NYCB's loss this quarter is that the bank's loan loss provision reached $552 million, far exceeding market expectations and the $62 million in the previous quarter, indicating a deterioration in credit prospects.

Jon Arfstrom, an analyst at RBC Capital Markets, said in a report to clients that NYCB's management had previously stated that asset quality was strong, so "their tone has clearly changed", and he said:

"This is a substantial negative surprise."

The unexpected earnings miss by NYCB inevitably reminds the market of the banking systemic crisis caused by the collapse of SVB Financial last year.

At that time, due to the Federal Reserve's continued high-intensity interest rate hikes, the market value of SVB Financial's financial assets such as bonds continued to decline. Eager to adjust its asset portfolio, the disclosed loss information triggered panic among depositors, leading to a run on the bank, and ultimately collapsed under the pressure of a single-day withdrawal request of up to $42 billion.

For NYCB, the current trouble lies in the liquidity panic. Last week, the Federal Reserve announced that the emergency bank rescue tool (BTFP) will not be renewed, and regional banks in the United States face the risk of liquidity drying up.

However, Wall Street News previously analyzed that the non-renewal of BTFP may only be part of the "March drama" of the Federal Reserve. Repurchase rates have started to "occasionally" surge, and overnight reverse repurchase agreements (ON RRP) are being exhausted, all indicating that liquidity risks may erupt in the near future. At the beginning of the year, Dallas Fed President Logan stated that although liquidity and bank reserves in the financial system are still very abundant, individual banks may begin to experience tight liquidity, especially as the usage of overnight reverse repurchase agreements by the Fed decreases.

Logan's remarks ignited speculation in the market about the Fed's slowing pace of balance sheet reduction (QT), and liquidity has become a "new policy target" that the market is focusing on.

At the FOMC meeting in January, the Fed stayed put as expected. Chairman Powell stated in a subsequent press conference that although the Fed has not yet reached the confidence level to start cutting interest rates in March, they plan to have in-depth discussions on the balance sheet issue starting in March.

During the meeting, Powell stated that the progress of the balance sheet reduction process since the current tightening cycle has been good, and there is no need to wait until overnight reverse repurchase agreements (RRP) are completely reduced to zero before slowing down the balance sheet reduction process.