Banks are still fighting safeguards even as risks pile up

With the help of a billion-dollar cash infusion and the market-soothing arrival of former government officials, New York Community Bank has come back from the brink.

With the help of a billion-dollar cash infusion and the market-soothing arrival of former government officials, New York Community Bank has come back from the brink. But it’s not out of the woods yet. And some experts say NYCB is not merely an isolated hiccup for a single lender that got out over its skis. The trouble at NYCB — which has sent its already battered shares on a wild ride this week — is putting a spotlight on how America’s banks manage (or fail to manage) risks to their balance sheets. “What is the fundamental problem in the US banking system? Ultimately, it’s very high leverage,” Tomasz Piskorski, a finance professor at Columbia Business School, tells me. “A typical bank in the US — and there’s actually not much variation, whether it’s big, whether it’s small —  is about 90% debt-funded.” In other words, if you’re a bank with $100 million of assets, $90 million of that is debt and $10 million is equity. That means even a relatively modest decline in the value of your assets can technically push you into insolvency, especially if depositors decide to yank their money out, Piskorski explains. Even a year after that exact thing happened — Silicon Valley Bank failed after depositor demand eclipsed the value of its assets — regulators haven’t addressed the core leverage issue.