A warning has been issued by an insider at the International Monetary Fund (IMF) regarding the possibility of another banking crisis in the United States. This comes as inflation heats up, hopes for interest rate cuts from the Federal Reserve diminish, and concerns about a growing crisis in the real estate market intensify.

Desmond Lachman, a former Deputy Director at the IMF and current senior fellow at the American Enterprise Institute, has written an article highlighting the vulnerability of regional banks to commercial real estate (CRE) loans. Remote working trends and the reduced demand for office space have severely impacted this sector.

Lachman emphasizes that many CRE loans are reaching maturity at significantly higher rates than when they were initially taken out. Coupled with record vacancy rates, smaller banks that have exposure to these loans will soon face major challenges.

Lachman draws attention to a previous regional bank crisis centered around Silicon Valley Bank, which required significant intervention from the Federal Reserve and the Federal Deposit Insurance Corporation. He suggests that another regional bank crisis may be looming, leading to a credit crunch for the crucial small and medium-sized business sector.

Regional banks are heavily reliant on commercial real estate lending, and property developers need to refinance approximately $930 billion in maturing loans this year. Given the record office vacancy rates and high interest rates, it is unclear how this can be accomplished without debt restructuring.

A recent study by the National Bureau of Economic Research estimates that 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 the commercial real estate sector represents 18% of all regional banks’ loan portfolios. This wave of defaults in property loans will pose a significant problem for these banks, which serve as a major source of finance for small and medium-sized companies.

There have been signs of strain in the commercial real estate market in recent months, evident in several high-profile buildings selling for substantially less than their previous market value. For example, a building in San Francisco recently sold for a mere quarter of its 2019 price, plummeting from $86 million to $22 million.

It is crucial for investors to exercise caution and conduct thorough research before engaging in high-risk investments in Bitcoin, cryptocurrency, or digital assets. Transfers and trades are undertaken at one’s own risk, and any losses incurred are the investor’s responsibility. The Daily Hodl does not provide recommendations for buying or selling cryptocurrencies or digital assets, nor does it offer investment advice.