US regional bank stocks tumble amid fraud and credit risk revelations

Shares of U.S. regional banks fell sharply after Western Alliance Bank and Zions Bank revealed exposure to alleged borrower fraud. Both institutions reported potential loan losses following defaults tied to companies such as car parts maker First Brands and auto lender Tricolor, which are now under investigation by the U.S. Department of Justice.

Source Financial Times

The KBW regional banking index dropped 6.3%, its lowest level since June, with Zions Bank tumbling 13.1% and Western Alliance sliding 10.8%. Analysts warned that these cases reignited fears over credit quality and transparency in smaller banks’ lending portfolios, echoing the volatility seen after last year’s banking turmoil.

Zions said it discovered “apparent misrepresentations and contractual defaults” on two commercial loans and set aside $60 million in provisions. Meanwhile, Western Alliance launched legal action over fraudulent collateral claims, seeking to recover $100 million. Despite reassurances from both lenders about stable outlooks, investors are bracing for potential contagion across the regional banking sector.