An International Monetary Fund (IMF) insider says a new reckoning in the US banking industry is “all too likely.”
Desmond Lachman, former Deputy Director at the IMF’s Policy Development and Review Department, says he expects 2024 to be a rough year for American banks, the Chinese state-run Xinhua reports.
Says Lachman,
“It is all too likely that we will have another round of the regional bank crisis in 2024. All of this could pose a serious risk to the economic recovery.”
Lachman, also a senior fellow at the economic think tank American Enterprise Institute (AEI), says regional banks are in a precarious position, with about 18% of their loan portfolios in the troubled commercial real estate industry.
“Major property investors, such as Brookfield and Blackstone, are starting to walk away from their mortgages, Lachman noted.
The scenario makes it more likely that commercial property owners will, possibly by next year, start defaulting on their loans. That would be very bad news for small and mid-size banks.”
The warnings from the former official come as banks deal with a net drop in deposits over the last year.
According to data from the St.Louis Fed, US banks lost $359.32 billion in deposits between December 21, 2022, and December 20, 2023.
A recent survey conducted by the Federal Reserve which polled market professionals, academics, investment funds and research and advisory firms found that the US banking industry was in a state of concern.
The participants say that while the sector may have withstood financial tremors in 2022, banks are still at risk of another crisis for two key reasons.
“Although survey respondents noted the banking sector has stabilized since the period of acute stress earlier this year, many highlighted risks of renewed deposit outflows given that large portions of deposits remain uninsured.
Many respondents continued to link risks of re-emerging banking-sector stress to potential losses on CRE (commercial real estate) exposures, particularly among smaller and regional banks.”
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