8 Big Drags on Markets, Economy: Gary Shilling

5. Regional bank woes continue.

Problems persist for regional U.S. banks after regulators bailed out Silicon Valley Bank, Signature Bank, and First Republic, Shilling noted.

“Old-fashioned runs on these banks are unlikely even though widespread discussion of regional bank problems on social media not only exposes bank risks but exacerbates them,” he said.

But these financial institutions are “suffering slow-motion runs,” as implied by their stock prices, which have not recovered from the early 2023 plunge, Shilling added. Bank deposits are falling as worried consumers move funds to Treasurys and money market funds despite implied guarantees from regulators, he said.

This creates another problem for banks, which are replacing traditional deposits with brokered deposits that are more expensive and do not tend to stick around as long, he added.

Among other potential problems, regional banks are especially vulnerable to commercial real estate weakness, according to the advisor.

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