An IMF insider is sounding the alarm on another potential banking crisis in the US, as inflation heats up, the prospect of interest rate cuts from the Fed diminishes, and concerns mount over the real estate market. Desmond Lachman, a former Deputy Director at the IMF and current senior fellow at the American Enterprise Institute, warns that regional banks are in a precarious position due to their exposure to commercial real estate (CRE) loans, which have been severely impacted by the rise of remote work and the reduced need for office space.

Lachman points out that a significant amount of CRE debt is reaching maturity at much higher interest rates compared to when the loans were initially taken out. Coupled with record vacancy rates in office buildings, smaller banks that have exposure to these loans will soon face major challenges. He highlights the example of the Silicon Valley Bank crisis from last year, which required intervention from the Fed and the Federal Deposit Insurance Corporation. Lachman suggests that another regional bank crisis may be imminent, leading to a credit crunch for the crucial small and medium-sized business sector.

These regional banks heavily rely on commercial real estate lending, and property developers will need to refinance approximately $930 billion in loans this year. Lachman believes that debt restructuring will be necessary, as office vacancy rates remain at historic highs and interest rates remain elevated. According to a recent study by the National Bureau of Economic Research, nearly 400 small and medium-sized banks are likely to fail in the coming years due to the commercial real estate crisis.

Lachman reveals that approximately 18% of all regional banks’ loan portfolios are exposed to the commercial real estate sector. The wave of defaults on property loans will pose a significant problem for regional banks, which are a vital source of financing for small and medium-sized companies. Commercial property loans make up around 18% of these banks’ overall loan portfolios.

Signs of strain in the commercial real estate market have become apparent in recent months, with several high-profile buildings selling for significantly less than their previous market value. An example cited is a building in San Francisco, which recently sold for only a quarter of its 2019 price, plummeting from $86 million to $22 million.

It is important to stay informed about developments in the market. Subscribe to receive email alerts and stay updated on price action by following us on Twitter, Facebook, and Telegram. Stay in the loop with The Daily Hodl Mix.

Disclaimer: The opinions expressed in this article are not investment advice. Investors should conduct their own research before engaging in high-risk investments in Bitcoin, cryptocurrency, or digital assets. Please be aware that any transfers and trades you make are at your own risk, and you are responsible for any losses you may incur. The Daily Hodl does not endorse the buying or selling of any cryptocurrencies or digital assets, nor is it a financial advisor. Please note that The Daily Hodl participates in affiliate marketing.