REPORT: Real Estate Downturn Could Destroy More Than 300 Banks

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Kay Smythe News and Commentary Writer
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An analysis published in early June suggests that more than 300 banks could be at risk should the current commercial real estate downturn continue.

Some 300 banks have so many loans dedicated to commercial real estate on their books that their entire Tier 1 capital could be wiped out if the economy plummets in a worst-case scenario event, according to statements made by CBRE Chief Economist and Head of Research Richard Barkham, shared by American Banker. Barkham made the comments at a National Association of Real Estate Editors conference, and didn’t really have much in the way of good news for his audience.

CBRE analyzed Federal Deposit Insurance Corp. data across balance sheets of some 4,800 insured banks, and identified the sector’s total exposure in the context of commercial real estate. After a hypothetical stress scenario was applied to the data, property values and net operating incomes dropped so violently they registered a total loss.

While Barkham says this scenario is unlikely, it would result in 311 bank failures, mostly among community banks. Twenty regional banks  and one large bank would also be at risk. The actual bank names were not disclosed, which feels somewhat stupid to me — if there is a risk, tell the people at risk, amirite?

The total asset loss of the failed banks would be somewhere around $600 billion, or three times the size of now-collapsed Silicon Valley Bank.

“This is going to be a problem for bank earnings. Banks are going to have to write down the loans, write down their earnings, but there isn’t enough here to bring down the banking system,” Barkham noted. “It’s irresponsible, I think, to suggest that it will.”

Compounding this issue is the fact that some $270 billion of bank-held commercial mortgages will mature in 2023 alone, forcing property owners to try and refinance their assets, which may have dropped so low in value that it just won’t possible. (RELATED: FLASHBACK: Barney Frank Tells Daily Caller’s Kay Smythe He’s On The Board Of Signature Bank)

In terms of the residential real estate sector, thousands if not millions of people across America have no idea how utterly screwed they are financially thanks to soaring interest rates and massively overvalued homes. I’ve lost count of the number of friends and family members who’ve purchased extremely overvalued property at more than 5% interest rates in the last two years, none of whom will be able to refinance when the bubble bursts, and this whole thing comes crashing down.

If this sounds like you, speak to a financial advisor today. Hopefully you’ll be able to avoid joining whatever reincarnation of Occupy Wall Street shows up once this financial catastrophe really hits the fan.