Soros Fund Management Chief Executive Says Additional Banks Will Fail: 'There Are More Problems Under The Surface'

Dawn Fitzpatrick, the chief executive of the $5.61 billion private investment firm Soros Fund Management, says the crisis in the U.S. banking sector is not yet over, and more failures are on the way. 

In an interview with Bloomberg, Fitzpatrick said that additional bank failures are on the horizon, citing ongoing concerns and warning signs within the troubled banking sector.

"I think you are going to see more bank failures, likely in the small banks. So it's not going to be the big headlines and the size of the failures we had so far. But I think there are more problems under the surface," she said. 

"The Federal Reserve has said they’re doing a comprehensive review of bank regulation. I think what that’s going to look like is enhanced stress test, AOCI (accumulated other comprehensive income) exemptions I think are going to disappear. That’s [when] people did not have to mark things to market," Fitzpatrick added. 

Fitzpatrick believes that banks must prepare for incoming regulatory measures, which she calls "pretty punitive." 

She adds that the Federal Reserve will likely introduce regulations that require banks to report their unrealized losses on assets such as government bond holdings.

Also Read: Senate Committee Confronts Surge Of Bank Failures - Demands Swift Action, Stricter Regulations

She also said that there's going to be a lot more scrutiny on liquidity management. 

"One of the interesting things coming out of the 2008 financial crisis: there was a lot of focus on asset quality… and not as much on liability management. But now we know deposit assumptions were just wrong," Fitzpatrick said. 

The downfall of several U.S. banks this year has prompted many individuals and businesses to withdraw their money from bank deposits and invest in money market funds.  

Earlier this month, Bank of America Corp (NYSE: BAC) said that the flow of capital into money market funds is coming close to a level last seen approximately three years ago when investors panicked and redirected $917 billion into cash funds amid the COVID-19 pandemic.

Talking about the banking crisis and withdrawal restrictions in the bank, Fund manager Hugh Hendry said that the Federal Reserve's monetary policy had increased the probability that banking customers could one-day face restrictions on the amount of cash they can withdraw.

"If we went back a year ago, the probability you would assign to that would be almost zero. And I'm saying that probability, like mercury, is rising," she said. 

Now Read: White House Economist Says Fed's Rate Hikes Having Negative Impact On Banking Sector — Yes, You Read It Right!

Photo: Dawn Fitzpatrick on flickr