Bank / Credit Union

Wall Street concerned over possible regional bank crisis

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February 6, 2024

In spring 2023, the banking sector was rocked by the collapse of multiple banks including Silicon Valley Bank and Signature Bank. Now Wall Street investors are concerned about a potential second banking crisis due to falling prices within the $20 trillion commercial real estate market, according to a report by CNN.

Commercial prices have been falling steadily since COVID-19 as many businesses and employees have continued to work remotely. In addition, the Federal Reserve has increased interest rates, which have hurt the market. For regional banks, this can be an issue, since they hold 80% of the $2.7 trillion in commercial real estate loans.

More than $2.2 trillion of those loans will come due between 2024 and 2027, and regional banks might have issues collecting. Some regional banks have already seen losses, such as New York Community Bancorp which saw a $252 million loss last quarter and a $552 million loss in loans.

"As losses from a [commercial real estate] loan portfolio accumulate, they can spill over into the broader financial system," The Financial Stability Oversight Council wrote in a statement. "Sales of financially distressed properties can reduce market values of nearby properties, lead to a broader downward CRE valuation spiral and even reduce municipalities' property tax revenues."