Regional bank stocks plunge on fraud, loan losses
5 min read
US regional bank stocks plummeted Thursday after fraud disclosures and loan losses triggered the sector's worst selloff since April, sending the Dow Jones tumbling over 300 points and weakening the dollar to a two-week low against the yen.
The banking turmoil began when Zions Bancorporation disclosed a $50 million charge-off related to two commercial loans from its California Bank & Trust division, causing shares to plunge 13%. Western Alliance Bancorporation fell 11% after filing a fraud lawsuit against borrower Cantor Group, while Jefferies Financial Group dropped 9% on exposure to bankrupt auto parts maker First Brands.
Here are three summarized points about the US Regional Bank crisis impacting stocks and the dollar:
- The crisis started with major regional banks like Zions Bancorporation and Western Alliance reporting large loan charge-offs and fraud allegations, triggering a sharp selloff in regional bank stocks—the sector's worst since April—and dragging major indices, including the Dow and S&P 500, lower. The turmoil also weakened the US dollar against the yen and pushed investors towards safer assets like gold and Treasury bonds.
- The banking issues have spread global market fears with significant declines in Asian markets (Nikkei, Hang Seng), reflecting concerns that credit problems at isolated regional banks could trigger wider contagion amid ongoing economic uncertainty and high interest rates.
- Rising credit concerns are rooted in recent bankruptcies in related sectors—like auto parts companies—and growing worries about hidden bad loans in private credit markets. This recalls previous regional banking crises when unexpected bad loan exposures led to widespread market panic and bank failures, fueling fears that further losses could hit the sector and economy.
Market Contagion Spreads Globally
The regional banking selloff dragged major indices lower, with the S&P 500 falling 0.6% and the Nasdaq declining 0.5%. The SPDR S&P Regional Banking ETF tumbled 5.6%, marking its steepest drop since April's tariff-induced selloff.[1][2][3][4]
Currency markets reacted swiftly as the dollar weakened to around 149.90 yen, strengthening past the 150 level for the first time since October 6. The 10-year Treasury yield fell seven basis points to 3.97%, its lowest level this year, as investors sought safe havens.[5][6][7]
Asian markets extended the rout Friday morning, with Japan's Nikkei 225 falling 1.3% and Hong Kong's Hang Seng dropping 2%. Gold surged to a new record high above $4,378 per ounce amid the flight to safety.[8][9]
Credit Concerns Multiply
The banking troubles follow recent bankruptcies that have raised alarms about hidden credit risks. Auto parts manufacturer First Brands filed for bankruptcy last month with over $10 billion in liabilities, while subprime auto lender Tricolor Holdings also collapsed, prompting JPMorgan Chase to write off $170 million.[1][2][3]
"When you see one cockroach, there are probably more," JPMorgan CEO Jamie Dimon warned this week, reflecting growing unease about the opaque private credit market.[2][4]
The crisis has reignited fears reminiscent of 2023's regional banking turmoil, when Silicon Valley Bank and Signature Bank failed. Analysts warn that even isolated credit issues can trigger sector-wide selloffs as investors adopt a "sell first, ask questions later" mentality in an environment where banks face high interest rates and economic uncertainty.[5][6]
Reference sources:
[1](https://www.reuters.com/business/finance/mapping-scale-beleaguered-first-brands-debts-its-creditors-2025-10-16/)[2](https://finance.yahoo.com/video/banks-most-exposure-first-brands-195244347.html)[3](https://www.reuters.com/business/first-brands-tricolor-collapses-invite-more-scrutiny-wall-street-sees-robust-2025-10-14/)[4](https://www.morningstar.com/news/marketwatch/20251016194/zions-takes-50-million-loan-loss-as-another-credit-cockroach-appears-regional-bank-stocks-are-falling)[5](https://www.bloomberg.com/news/articles/2025-10-16/regional-banks-tumble-as-traders-sell-first-ask-questions-later)[6](https://www.investopedia.com/concerns-about-bad-loans-rocked-bank-stocks-on-thursday-11831476)[1](https://www.cnn.com/2025/10/16/investing/us-stocks)[2](https://finance.yahoo.com/news/live/stock-market-today-dow-drops-300-points-sp-500-nasdaq-slide-as-regional-bank-woes-hit-markets-133458076.html)[3](https://www.bloomberg.com/news/articles/2025-10-16/regional-banks-tumble-as-traders-sell-first-ask-questions-later)[4](https://www.morningstar.com/news/marketwatch/20251016194/zions-takes-50-million-loan-loss-as-another-credit-cockroach-appears-regional-bank-stocks-are-falling)[5](https://www.bloomberg.com/news/articles/2025-10-17/yen-strengthens-past-150-per-dollar-for-first-time-since-oct-6-mgub7f3c)[6](https://ycharts.com/indicators/us_dollar_to_japanese_yen_exchange_rate)[7](https://www.businessinsider.com/regional-bank-stocks-credit-quality-lending-zions-wal-jefferies-2025-10)[8](https://www.share-talk.com/what-happened-overnight-friday-17th-october-2025/)[9](https://www.reuters.com/world/china/global-markets-wrapup-1-2025-10-17/)