On October 16, local time, the stock prices of two regional banks in the United States, Zions Bancorp and Western Alliance Bancorp, suffered a sharp fall, falling 13% and 11% respectively. The direct reason behind this was that the two banks disclosed that they had encountered bad commercial mortgage fraud, and the borrowers were also related to other lending institutions in the industry.

Affected by this, the market’s concerns about the credit crisis have revived, and the stock prices of regional U.S. banks also plummeted that day, becoming the second worst trading day since the collapse of Silicon Valley Bank in March 2023. Although the stock prices of the two banks rebounded the next day, they did not recover their previous losses.

On October 18, Bai Xue, senior deputy director of the Research and Development Department of Oriental Jincheng, told a reporter from China Times that in the short term, the situation of these two banks is an individual case and the scale of direct losses is controllable. However, in the medium to long term, similar credit risk spread risks cannot be ignored. “Considering that the business model of regional banks is highly dependent on non-performing commercial mortgage loans and small and medium-sized enterprise credit, and in the current economic environment, the rising vacancy rate of non-performing commercial real estate and the rising corporate default rate will likely form a vicious cycle of ‘asset quality deterioration – capital erosion – credit contraction’, and the ability to resist risks will be weakened, which will increase the possibility of similar credit risks.”

Two banks claim to have suffered loan fraud

Zion Bank and Western Union Bank are two regional banks in the United States, with assets exceeding US$85 billion each.

Zions Bank disclosed in its recent 8-K filing with the U.S. Securities and Exchange Commission that on October 15, 2025, the bank made full provisions for approximately $60 million in outstanding debt under two commercial and industrial loans underwritten by its wholly-owned subsidiary California Bank & Trust in San Diego (California Bank & Trust), and wrote off $50 million of it. The provision and write-off will be reflected in the bank’s third quarter 2025 earnings and financial statements.

The “China Times” reporter noticed that according to data disclosed on Zion Bank’s official website, the bank’s net revenue (net revenue) in 2024 was US$3.1 billion. In other words, the losses on these two loans were equivalent to 3.5% of the bank’s net revenue in 2024.

During its internal review of the borrowers, debtors, loans and related collateral involved in the two loans, Zion Bank found that there were clear misrepresentations and defaults by the borrowers and debtors, as well as other irregularities related to the loans and collateral. “The Bank subsequently sent default and accelerated repayment notices to borrowers and debtors, but received no response.”

“The bank plans to seek legal relief and has filed a lawsuit against the debtor in California, demanding full recovery. Although the bank believes that this is only an individual case, it still plans to hire a lawyer to coordinate an independent review.” Zion Bank also said that based on what the bank has learned recently, many banks and other lending institutions have filed legal proceedings against the parties involved.

Western Union also said it had provided loans to the same borrower and had filed a fraud lawsuit.

“The essence of the ‘thunder’ incident at two regional banks is the concentrated exposure of credit quality deterioration and risk control loopholes.” Bai Xue said that the thunderstorms at Zion Bank and Western Union Bank directly stemmed from loan fraud on non-performing commercial mortgage funds. The core problem was that borrowers systematically defrauded borrowers by forging property rights documents and transferring mortgage assets.

“This reflects the serious lack of due diligence and risk control flaws in regional banks’ credit approval, especially weak supervision of loans from non-depository financial institutions – such loans usually account for about one-third of the commercial loans of large banks, but regional banks’ risk exposure may be higher,” Bai Xue said.