Investors were spooked by news Zions Bancorp would write off fraudulent loans, leading to a sell-off in bank stocks. Regional bank stocks rebounded after lenders sued fraud suspects, raising concerns about lending standards. Executives expressed confidence in non-bank lending portfolios, easing some fears about hidden risks.

The KBW Regional Banking Index bounced back 1.7% after slumping 6% Thursday due to Zions and Western Alliance lawsuits against fraud suspects. Recent bankruptcies and fraud allegations have heightened concerns about lending practices. JPMorgan Chase and Fifth Third Bancorp took $170 million charges related to Tricolor bankruptcy.

Bank stocks have experienced turbulence amid fears of underestimating exposure to risky non-bank lending practices. Jefferies analysts believe recent events are isolated incidents, not systemic issues. JPMorgan CEO Jamie Dimon warned of potential ongoing turmoil. Bank executives’ comments during earnings reports have provided some reassurance.

Bank CEOs like John Turner of Regions Financial and John Ciulla of Webster Financial expressed confidence in their non-bank lending exposures. Lending to non-depository financial institutions (NDFIs) has grown significantly in the last decade, especially at large banks. The Fed included an assessment of NDFI lending risks in its annual stress test.

The Fed estimated large banks could face $490 billion in loan losses over two years due to deteriorating credit quality in NDFI portfolios. Despite the potential losses, the Fed believes large banks are well-prepared to handle additional credit and liquidity stresses. Overall, the panic over bad loans may have been overblown, according to analysts.

Read more at Yahoo Finance: Was The Panic Over Bad Loans That Sent Bank Stocks Reeling Overdone?