Worst Banks In America

Following the unforeseen collapse of the Silicon Valley Bank earlier this year, investors have rightfully woken up to the possibility of a broader contagion spreading to the rest of the financial sector.

In fact, the integrity of the US banking industry is not just a worry for Wall Street’s movers and shakers; it affects every American, from homeowners and renters to retirees and multinational corporations.  

Likewise, as confidence in the broader economy falters, it is essential to illuminate institutions and creditors that may not be meeting expected standards.

Hence, we explore the dark side of the country’s banking system, showcasing the establishments that have underachieved because of customer complaints and financial weaknesses, along with those whose dedication to responsibility and public examination makes them a prudent choice in a perplexing world.

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Which Banks Have The Most Complaints?

It probably won’t come as much of a surprise to learn that the US Consumer Financial Protection Bureau received some 2.24 million complaints over the last three years. 

However, while only 107 thousand were related to checking or savings accounts, that statistic still demonstrates how important the industry is to people.

One bank that fell short of customers’ expectations in a big way was Wells Fargo & Company (WFC). The firm had to weather the fallout from multiple scandals, some involving fake accounts while others related to auto loan mismanagement.

Unfortunately, it doesn’t seem that WFC has gotten a hold of problems even now. A new crisis may be emerging, with some customers reporting that their “deposits have disappeared.” But even if this does turn out to be just a technical glitch, it doesn’t help repair Wells’ already tattered reputation.

Which Banks Should You Avoid in 2023?

The banking sector is influenced by a myriad of factors that can determine its stability and performance. 

Indeed, one of the primary concerns for banks is the fluctuation of interest rates, as lenders derive a significant portion of their income from the net interest margin – or, in other words, the difference between the interest they earn on loans and the interest they pay on deposits. Rapid and significant shifts in these rates can directly impact this margin, thereby affecting a bank’s profitability.

The wave of technological advancements and the rise of fintech has also put traditional banking methods to the test. Banks now need help adapting to these new digital solutions or risking obsolescence. Additionally, operational risks, especially cybersecurity threats, have emerged as significant concerns in recent years. 

Given this backdrop, two banking names stand out as being particularly vulnerable at the moment.

The first is PacWest Bancorp (PACW), whose high concentration in real estate assets and off-balance sheet securities losses has seen it face a set of pronounced risks of late. 

In fact, to mitigate the danger of deposit outflows, PACW has taken the drastic step of increasing savings rates to an annual percentage yield of over 5%. This move, while effectively curtailing the risk of deposit loss, has significantly impacted the bank’s profitability.

Furthermore, with a real estate loan portfolio of around $16.8 billion, Pacific Western has significant concentrations in residential mortgages and construction and land loans. The business’s heavy reliance on real estate – which constitutes approximately 75% of its $22.3 billion loan portfolio – is on the high side too. This increased exposure and the ongoing decline in US commercial property values pose a significant roadblock to the bank’s asset quality.

On the other hand, HomeStreet, Inc. (HMST), a Seattle-based banking brand established in 1921, raised a few eyebrows with the release of its latest quarterly report recently.

For instance, despite recording core earnings of $3.2 million – which it achieved through optimized operational expenses and a cautious approach to loan origination – the bank’s long-term performance indicators are less than promising.

Hence, a significant 64.6% decline in its share price in 2023, coupled with a net loss of $31.4 million for the period ended June 30, 2023, suggests difficulties in both operational efficiency and sales generation. 

Moreover, when compared with the performance of the S&P 500, it becomes apparent that investors in HMST are undeniably overlooking potential profits. The bank’s challenges in achieving a decent bottom line are mirrored in its diminishing net interest margin, which experienced a year-on-year decline of 30 basis points, dropping from 2.23% to 1.93%.

What Bank Is Too Big To Fail?

The notion of being “too big to fail” in the banking environment pertains to establishments of such magnitude and interconnectivity that their potential downfall could instigate far-reaching economic consequences. However, the parameters to ascertain whether a bank falls under this classification are frequently intricate and elusive.

To begin with, the sheer magnitude of assets a bank possesses is undeniably a principal factor to consider. As such, the greater the size of the enterprise, the more notable its prospective ramifications on the economy in the event of its decline.

Secondly, the magnitude of the network effect of the bank with other financial entities is crucial, as a highly interconnected bank can set off a domino effect, causing distress across the financial system. 

Another factor is substitutability, which assesses whether another institution can easily replace the bank’s services. If not, the bank’s failure could create a void in essential financial services. 

With these imperfect benchmarks, several American banks could today be viewed as “too big to fail.” As an illustration, JPMorgan Chase sets itself apart as one of the globe’s most influential financial institutions, with activities extending across various nations and industries.

Similarly, with its sturdy worldwide presence, Citigroup provides a broad assortment of monetary offerings, ranging from consumer banking to investment administration.

Lastly, Wells Fargo, notwithstanding its previous disputes, continues to assert its authority in the American banking scene, particularly in the realm of home loans.

What Is The #1 Trusted Bank in America?

Bank of America has firmly established itself as a model of trust and dependability in the American banking industry.

With a storied heritage that extends over 240 years, it has consistently showcased its dedication to serving the American public. This deep-rooted legacy highlights its resilience and flexibility and emphasizes its unwavering allegiance to its customers.

Moreover, BAC’s financial stability is another cornerstone of its esteemed standing, which, as the second-largest bank in the US by assets, it has consistently showcased its financial robustness, giving its customers the confidence that their finances are in safe and capable hands.

What Is The Hardest Bank to Get Into?

If you equate stringent entry requirements with prestige and quality, you might find the exclusivity you’re looking for in the private banking domain. This subsection of the industry typically tailors itself to so-called high-net-worth individuals who are wealthy and have financial needs that often eclipse those of the average retail consumer. 

In this respect, J.P. Morgan Private Bank is one of the foremost players in the space. The enterprise offers wealth planning advice that can encompass everything from trust & estate planning to how to manage your philanthropic endeavors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.