'Material weaknesses' at New York Community Bancorp sting consumer confidence and ignite fears of a bank run. But here's why you shouldn't panic

Bethan Moorcraft
'Material weaknesses' at New York Community Bancorp sting consumer confidence and ignite fears of a bank run. But here's why you shouldn't panic
'Material weaknesses' at New York Community Bancorp sting consumer confidence and ignite fears of a bank run. But here's why you shouldn't panic

U.S. banks have been treading on eggshells since the banking crisis of spring 2023, when the dramatic downfalls of Silicon Valley Bank (SVB) and Signature Bank took consumers by surprise.

Bank activity in recent weeks has ignited fears that history might be repeating itself.

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In January, New York Community Bancorp (NYCB) — a leading producer of multifamily loans on non-luxury, rent-regulated apartment buildings in New York City — reported a surprise loss of $252 million in the fourth quarter of 2023, compared to a $207 million profit in the three months prior.

The sudden drop caused NYCB’s stock to dive to its lowest level since 1997, stinging investor and depositor confidence. In the month between Feb. 5 and March 5, NYCB customers pulled $6 billion worth of deposits from the bank, according to CNN, shrinking its deposit base by 7%.

While that may seem indicative of a bank run, it pales in comparison to what happened at SVB in 2023, when customers withdrew $42 billion in one day over fears they wouldn’t be able to access their funds if the bank failed.

Here’s what caused NYCB’s major blip — and why you should keep a cool head if pressure is building at your bank.

A surprise fourth-quarter loss

NYCB’s fourth quarter loss was blamed on “decisive actions to build capital, reinforce our balance sheet, strengthen our risk management processes,” by the bank’s then-CEO Thomas Cangemi. He said the actions were “necessary” after NYCB almost doubled in size through two quick-fire acquisitions for Flagstar Bank and certain assets of Signature Bank, which failed last March.

However, in the same fourth-quarter earnings report, the bank also confirmed investors’ fears about the impact of a worsening credit environment for commercial real estate, where it had significant exposure.

NYCB announced it had increased its allowance for credit losses up to $992 million in the fourth quarter, from $619 million at Sept. 30, to “address weakness in the office sector [and] potential repricing risk in the multi-family portfolio,” among other things.

The lender held total loans of $84.6 billion, in the fourth quarter, with its top three borrowers being: multi-family properties (44%), commercial and industrial entities (24%) and commercial real estate (12%).

Of the bank’s vast multi-family loan portfolio — which is made up primarily of non-luxury, rent-regulated buildings in New York City — around 37% of the loans are due to mature or reprice in the next three years.

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After disclosing “material weaknesses” in its controls — as the bank put it in a February SEC filing under new CEO Alessandro DiNello — the bank suffered several headaches, including the withdrawal of deposits.

But NYCB has managed to turn things around and regain stability — thanks, in part, to a $1 billion investment from former Treasury Secretary Steven Mnuchin’s firm, Liberty Strategic Capital, among other private equity companies.

While NYCB seems to have averted a crisis for now, this saga — hot on the heels of the 2023 banking crisis — may cause consumers to ask the dreaded question: “What if my bank fails?”

Here are a few things to keep in mind.

Bank runs are 'very rare'

While any fragility in the U.S. banking system is concerning, a bank run is “very, very rare,” Joseph Maugeri, CFP, Managing Director of Corporate Relations at CFP Board, told Moneywise during the banking crisis in spring 2023.

“Customers rarely lose money,” he said. “It's the investors or bondholders that are normally hurt the most in these kinds of situations.”

Panic can cause people to make poor decisions, Maugeri added, pointing to the SVB collapse as a prime example.

“Many customers making quick decisions are what caused the bank run at SVB,” he said. “It was the panic that caused the crisis. Without the run on the bank, it would probably still be solvent at this point.”

If you’re concerned about the health of your bank, Maugeri suggests seeking the help of a financial adviser who can drown out the noise and explain your unique situation along with the options you have available to you.

Keep in mind that nearly all U.S. banks carry Federal Deposit Insurance Corporation (FDIC) coverage for their depositors. This would protect you from financial loss in the worst-case scenario of a bank run.

Typically, deposits are protected up to $250,000 per depositor, per insured bank, per ownership category. This means a joint account with your spouse, for example, would be covered up to $500,000.

“FDIC insurance is something you should have full confidence in,” Maugeri said. “I don't believe there's ever been a case where the FDIC has not paid the insurance for banks.”

If you’re concerned about the stability of the U.S. banking system, you could always spread your money between different insured banks, but Maugeri stressed that “in most cases, your money is probably safe.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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