Despite strong growth when compared with many other advanced economies and an apparently ceaseless march of consecutive stock market highs, the state of the U.S. economy and its various institutions – private and public – has been a contentious topic since before 2024 started.
Earlier reports, though acknowledging that U.S. banks were at risk, focused on the dangers regional banks are facing while maintaining the biggest players in the industry are stable.
However, a newly unveiled report from one of the key financial overseers in the country, the Office of the Comptroller of the Currency, revealed worrying and systemic risks affecting the American banking sector.
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Why regulators are concerned about American banks
According to the watchdog, 11 out of the 22 examined banks have insufficient safeguards and score relatively poorly in terms of operational risk, as they are ill-equipped to handle cybersecurity issues and employee errors.
The Office of the Comptroller did not go into details given the nonpublic nature of the findings, but given the broader risks in the economy, such as the rise in vehicle loan defaults and the global IT outage led by CrowdStrike (NASDAQ: CRWD) on Friday, July 19, the information provided by the report remains alarming.
Is the American economy about to collapse?
Indeed, the report came at a time when the most powerful bank in the U.S. – the Federal Reserve – is grappling with its own rising issues. Per the reports from Monday, July 22, the FED’s $1 trillion in paper losses is slowly turning into actual losses, by press time, worth some $100 billion.
The situation might both impact and be impacted by the funds rates given that the high interest imposed by the American central bank to combat inflation is making the FED’s efforts to reduce its deficit significantly more difficult.
What’s more, the deficit has so far proven substantial enough that the International Monetary Fund (IMF) has recently increased its warnings that the U.S. must take drastic measures to stabilize its economy.
Additionally, fears about the financial future of the United States extend beyond the possible ills of its banking sectors. The last 12 months have been filled with rumors and speculation about an upcoming recession.
As recently as July 19, a manager of a hedge fund well-known for correctly predicting and profiting from crises opined that the U.S. stocks are in danger of a 50% plunge due to a string of factors, including a technology bubble and the immense national debt.
