Wall Street is concerned about problematic loans from regional banks.

The logo of the Jefferies Financial Group in New York is displayed in this file photo from May 23, 2019.

New York — Wall Street is worried about the state of the country's regional banks after some of them wrote off poor loans to business clients over the past two weeks, raising concerns among investors that there might be more negative news to come.

The stocks of Zions Bank, Western Alliance Bank, and the investment bank Jefferies plummeted last week after they shocked investors by revealing a number of poor investments on their books. Jamie Dimon, CEO of JPMorgan Chase, increased the anxiety when he hinted that banks with potentially problematic loans would face additional challenges in the future.

When JPMorgan released its results on Tuesday, Dimon warned reporters and investors, "When you see one cockroach, there probably are more."

Investors follow a basket of banks called the KBW Bank Index, which has dropped 7% this month.

Other indications of concern were present. According to Federal Reserve data, banks used the central bank's overnight "repo" facilities for the second consecutive night, something they haven't had to do since the Covid-19 outbreak. To help cover their short-term cash shortages, this facility enables banks to convert highly liquid securities like mortgage bonds and treasuries into cash.

Western Alliance plunged after the bank claimed it had been scammed by a company called Cantor Group V LLC, while Zions Bancorp shares plummeted on Thursday after the bank wrote off $50 million in commercial and industrial loans. This coincided with Jefferies' announcement to investors that it could lose millions of dollars due to its involvement in First Brands, a bankrupt auto parts company.

On Friday, all three stocks made some progress. The CEO of Jefferies informed investors that there were no wider issues in the lending industry and that the company believes First Brands deceived them.

Mid-sized and regional banks that were unduly exposed to low-interest loans and commercial real estate were also involved in the most recent banking crisis, which occurred in 2023. First Republic Bank was eventually sold to JPMorgan Chase in a fire sale as a result of the crisis, which also caused Silicon Valley Bank and Signature Bank to fail. During that time, the stocks of other banks, including Western Alliance and Zions, fell sharply.

The Federal Deposit Insurance Corporation insures all bank deposits up to $250,000 per account in the event of a bank failure, even if banks do fail or are acquired at fire sale prices. Not a single depositor has lost their insured monies in the nearly 100 years since the FDIC was established in 1933.

Even the bigger institutions aren't exempt from this most recent issue, though. This week, a number of Wall Street institutions revealed losses related to the bankruptcy of Tricolor, a subprime car dealership that failed last month. The bankruptcy of Tricolor resulted in a $178 million loss for Fifth Third Bank, a bigger regional bank.

Nevertheless, the major banks think that any losses will be controllable and do not represent the overall state of the economy.

In an interview with Bloomberg Television on Friday, Christian Sewing, CEO of Deutsche Bank, stated, "There is no deterioration, we're very confident with our credit portfolio."

Regional banks play a significant role in the economy by lending to small to medium-sized enterprises and serving as key lenders for commercial real estate developers, even though the large Wall Street banks receive the majority of media and investor attention. The FDIC reports that there are over 120 banks with assets ranging from $10 billion to $200 billion.

Despite their size, these banks may have difficulties because their operations are not as varied as those of the Wall Street money center banks. They don't have substantial credit card and payment processing companies that could be sources of income when lending declines, and they are frequently more vulnerable to real estate and industrial loans.