$930,000,000,000 Wave of Debt Descending on US Banks As Hope for Interest Rate Reversal Fades: Former IMF Deputy Director

An IMF insider is warning of another US banking crisis amid hot inflation, dwindling hope of interest rate cuts from the Fed and fears of mounting crisis in the real estate market.

Writing for the American Enterprise Institute where he’s a senior fellow, former IMF Deputy Director Desmond Lachman notes that regional banks are dangerously exposed to commercial real estate (CRE) loans – a sector ravaged by the increase in remote working and the lessening need for office space.

With so much CRE debt reaching maturity at far higher rates than when they were first taken out – plus record vacancy rates – Lachman says that the smaller banks exposed to the loans will soon have some major issues on their hands.

“Early last year, a regional bank crisis centered on Silicon Valley Bank required large-scale intervention by the Fed and the Federal Deposit Insurance Corporation. Now, we could soon have another regional bank crisis that would cause a credit crunch for the all-important small and medium-sized business sector.

The regional banks are highly exposed to commercial real estate lending, and property developers need to roll over some $930 billion in maturing loans this year.

It is difficult to see how this will be done without debt restructuring, with office vacancy rates at record levels and interest rates so high.

A recent National Bureau of Economic Research Study estimated that close to 400 small and medium-sized banks will likely fail over the next few years because of the commercial real estate crisis.”

Lachman says 18% of all regional banks’ loan portfolios are exposed to the sector.

“A wave of property loan defaults will be particularly problematic for the regional banks that are a major source of finance for small and medium-sized companies. Commercial property loans constitute around 18% of those banks’ overall loan portfolios.”

Signs of stress in the commercial real estate market have emerged in recent months, with a number of high profile buildings selling for far less than their previous market value.

The most recent example is a building in San Francisco that just sold for a fourth of its 2019 price, dropping from $86 million down to $22 million.

Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any losses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

Generated Image: Midjourney

The post $930,000,000,000 Wave of Debt Descending on US Banks As Hope for Interest Rate Reversal Fades: Former IMF Deputy Director appeared first on The Daily Hodl.