State and federal officials should keep careful watch on NYCB

Recent news about New York Community Bancorp’s financial difficulties may seem remote. But the roots of the Hicksville-based banking firm are distinctly local — with many customers in Nassau and Suffolk counties. More importantly, its future is part of the overall concern about adequate safety for the nation’s banking system that affects every American.

Long Island bank customers shouldn’t be unduly alarmed. Their deposits are federally insured up to $250,000 per depositor. But government regulators and Congress should carefully watch what is happening with NYCB, whose branches have been rebranded as Flagstar Bank, to make sure it’s not a harbinger of deeper troubles to come.

Warning bells went off as NYCB’s stock shares dropped by more than 50% since Jan. 31 when the bank disclosed that loans from the troubled commercial real estate industry nationally had caused surprisingly large fourth-quarter losses that led to a dividend cut. Investors worried that NYCB’s difficulties might affect other regional banks that hold similar loans. Commercial real estate suffered greatly from the COVID-19 crisis, with offices empty and employees working from home. Many corporate offices are still partially empty, giving owners insufficient rents to pay off bank loans.

Experts worry about a ripple effect where badly stressed loans impact regional banks, and point to NYCB as the latest example. After its credit rating was downgraded to “junk,” NYCB reassured the public that it is financially sound.

Part of NYCB’s difficulty appears related to its 2023 purchase of the failed Signature Bank in Manhattan, which further pressured its bottom line and recalled last year's situation when depositors at California-based Silicon Valley Bank began pulling out their money over fear of that bank’s future. The financial collapse of both Signature and Silicon Valley forced regulators to take them over.

Government officials must make every effort to ensure that doesn’t happen with NYCB. Since the late 1990s, NYCB has acquired several local institutions, including, most significantly, Roslyn Savings Bank, which dates to 1875 and was one of the first banks established on Long Island. Since its stock drop-off, NYCB has vowed to “do whatever it takes” to improve its finances and build trust among customers. This is a good sign. It is important that bank officials be candid and forthright with the public in dealing with these complex difficulties, even if it means selling some assets.

NYCB has shown recent signs of a rebound with its stock price rising. It is regulated by the federal Office of the Comptroller of the Currency, with depositors’ money backed up by another federal agency to ensure there isn’t a bank-run panic as there was at Silicon. New York State financial officials also say they are keeping an eye on NYCB. This level of oversight is important to overcome the financial stresses caused by the commercial real estate crunch and keep our local economy running smoothly. In the banking business, as the nation has often learned, you can never be safe enough.