Bloomberg, Reuters and other media reports said that on October 16 local time, two major regional banks in the United States, Zions Bancorp and Western Alliance Bancorp, reported loan defaults. The U.S. banking sector was affected by this, with a sharp drop in bank stocks, the regional bank index fell 6.3%, and the KBW Nasdaq Bank Index fell 3.6%, both recording their worst single-day performance since April.

On October 16 local time, Zions Bank disclosed that two commercial and industrial loans underwritten by its subsidiary California Bank & Trust had resulted in $50 million in bad debt. After the news was released, Zions Bank's stock fell 13% on the same day.

Photo of California Bank & Trust

The bank stated that after investigation, it found that many notes and corresponding real estate had been transferred to other entities. The bank expects to recognize these costs in the third quarter and has filed a lawsuit in California to recover these loans.

Lawsuit documents showed that the loan involved funds related to investors Andrew Stupin and Gerald Marcil. Zions Bank has filed a fraud lawsuit against the relevant parties. The attorneys for Stupin and Marcil stated that the parties "strongly denied" these allegations.

On the same day, Western Alliance Bank confirmed that it had provided credit services to the relevant borrowers and had also filed a fraud lawsuit. The bank's stock fell 10.8% on the same day.

Western Alliance Bank, AFP

The report pointed out that the situation further intensified market concerns about credit risks. Although the losses related to fraud were relatively small, they triggered large-scale selling by investors. On October 16, the total market value of 74 large U.S. banks fell by more than $100 billion.

U.S. Regional Bank ETF Chart, CNBC

Before these two loan fraud incidents were exposed, there had been several loan default events in the U.S. recently, making the market uneasy about the banking sector.

Last month, Tricolor Holdings, a subprime auto loan institution, filed for bankruptcy, causing some bonds to almost lose all value; then First Brands Group, an automotive parts supplier, collapsed, with its debts to several well-known Wall Street institutions exceeding $10 billion.

JPMorgan's third-quarter financial report showed that the group lost $170 million due to Tricolor Holdings. JPMorgan CEO Jamie Dimon warned on the 14th that investors should "be prepared in advance," as more credit issues might come to light, "seeing one cockroach, there are likely more, everyone should be vigilant."

Although these cases are intensifying market anxiety, some analysts believe that recent corporate bankruptcies are isolated cases, related to individual borrowers, not systemic problems.

Mike Mayo, a banking analyst at Wells Fargo, said: "During periods of loose credit, there will be more fraud incidents. The overall credit conditions are still acceptable, but the issues that have emerged recently need close attention, and the level of attention must be increased."

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