Important day for the U.S. banking sector

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The U.S. banking sector will be very jittery this Monday, March 11. In particular, the ETF Financial Select Sector Fund is expected to have high volatility.

There are only six days left until the expiration of the extraordinary liquidity plan, known as the "bank bailout," which was introduced by the Federal Reserve less than a year ago to help regional banks in the United States cope with the deposit flight caused by the collapse of Silicon Valley Bank.

March 11 is the expiration of the Bank term funding program, as decided and announced by the Fed on Jan. 24. Investors interpreted this move as a signal that regional banks were finally overcoming financial difficulties.

Were U.S. regional banks finally overcoming financial difficulties?

Last week was very difficult for the New York Community Bank Corporation, with the announcement of a $2.7 billion loss in the fourth quarter. Rating agencies also downgraded the bank to "junk," leading to a -26 percent drop in stock prices last Friday. 

This could lead to possible deposit run-off and liquidity problems for the bank, putting the Fed's bailout program at risk. Investors and customers of U.S. regional banks are following this situation closely as they await decisions to be made on Monday the 11th. If the Fed still decides to terminate the BTFP, this will send a signal to the market that the New York Community Bank Corporation is just an isolated case and that the system no longer needs the contingency plans.

If, on the contrary, the Fed decides to extend aid for banks beyond March 11, banks that are facing a reduction in deposits would still be able to resort to an emergency liquidity window to avoid sudden crises. However, in this case, market investors might interpret such an extension as a signal that the crisis of regional banks has not yet been resolved.

Today will be the decision of the FED

This action would lead to new stock market sales and further outflows on deposits. The Fed will have to make a decision based on how the New York Community Bank Corporation crisis develops in the coming days. Some regional banks are experiencing difficulties in commercial real estate, which could influence the Fed's final choice.

Going forward, there could be other variables that could generate doubts among investors about the banking sector.

It is well known that interest margin is one of the most significant sources of income for banks. Therefore, if rates fall in the future as expected, this could adversely affect their earnings and financial performance.

If you are interested in trading in the U.S. banking sector, you can find a very useful tool on Markets.com: the Financial Select Sector Fund ETF. This ETF includes companies in the financial services, insurance, banking, capital markets, real estate investment trusts ("REITs") and consumer finance sectors.

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