"Now we have stage 2, where banks that are not particularly badly managed – they have issues but they're not particularly badly managed – are suddenly vulnerable," El-Erian warned, pointing to regional lenders that have been struggling since First Republic's failure this week."The cancer within them is starting to spread, and we've got to keep an eye on that," he added., and the risks of further contraction go up as banking contagion spreads.
If banking issues spur widespread financial contagion, the US would be in a true banking crisis, El-Erian said.That makes critical for regulators to contain the stress, he noted, adding that the US could also take steps to reform its federal deposit insurance.
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