An IMF Insider Predicts a New US Banking Crisis in 2024
An insider from the International Monetary Fund (IMF) has warned that a new banking crisis in the US is highly probable. Desmond Lachman, a former Deputy Director at the IMF’s Policy Development and Review Department, predicts a rough year for American banks in 2024. He emphasizes that this situation poses a significant risk to the economic recovery.
Regional Banks in Precarious Position
Lachman, who is also a senior fellow at the American Enterprise Institute (AEI), highlights that regional banks are particularly vulnerable. Approximately 18% of their loan portfolios are in the troubled commercial real estate industry. Major property investors like Brookfield and Blackstone are already walking away from their mortgages, which increases the likelihood of commercial property owners defaulting on their loans. This would be devastating for small and mid-size banks.
Deposits Decline and Concerns Remain
Banks are currently facing a decline in deposits over the past 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 reveals that market professionals, academics, investment funds, and research and advisory firms share concerns about the state of the US banking industry. They believe there is still a risk of another crisis due to uninsured deposits and potential losses on commercial real estate exposures.
Hot Take: US Banking System Faces Imminent Crisis
The warning from an IMF insider about a potential banking crisis in the US should not be taken lightly. With regional banks heavily exposed to troubled commercial real estate, defaulting loans could have severe consequences for smaller institutions. Additionally, the decline in deposits and concerns expressed by industry professionals indicate a fragile banking sector. It is crucial for banks to address these risks and strengthen their resilience to prevent another crisis that could negatively impact the overall economic recovery.
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