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IPFS News Link • Economy - Economics USA

Will empty offices cause the next banking crisis?


Experts are sounding alarms that the distressed US commercial real estate market could trigger a new banking crisis, if default rates on commercial mortgages rise sharply. 

Some $929 billion of outstanding commercial mortgages held by lenders and investors will mature in 2024, or 20 percent of the $4.7 trillion total outstanding debt, according to recent data from the Mortgage Bankers Association.

Meanwhile, higher interest rates are battering commercial real estate (CRE) property values across the board, with office buildings hit particularly hard due to the enduring popularity of remote and hybrid working.  

Disturbingly, about 14 percent of all CRE loans, and 44 percent of office loans, appear to be 'underwater,' with current property values that are less than the outstanding loan balances, according to a recent working paper for the National Bureau of Economic Research.

'If nothing changes — if interest rates remain elevated and property values do not improve — we do view defaults at the rate of the Great Recession, and in fact even higher, as quite a possibility,' one of the co-authors, Columbia Business School professor Tomasz Piskorski, told

If default rates on CRE loans jumped to 10 percent, the study estimates that 231 US banks, with aggregate assets of $1 trillion, would see the market value of their assets fall below the value of their customer deposits.

That situation could spur panicked customers to withdraw their uninsured deposits, in the same kind of rapid bank run that triggered the collapse of Silicon Valley Bank last year.

'Because of the high interest rates, there are dozens to hundreds of banks that are at the brink of solvency. So this additional commercial real estate distress puts them into the group of banks that potentially are susceptible to runs by depositors,' Piskorski said in a Zoom interview this week. 

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