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The $38 Billion Problem Facing U.S. Banks

AngelaRoberts

Written by Angela Roberts

May 30, 2024

As the head of a company with over 400 employees working from multiple office buildings across two states, I probably take a keener interest in banking and commercial real estate matters than your average citizen.

That said, I think it’s important for Americans to know that we may be teetering on the brink of a crisis which threatens to trigger a wave of new bank failures. And if that happens, we could be in store for a full-blown recession.

Americans’ savings could be at risk.

Like many, I’m concerned about the impact this potential crisis may have on our already uncertain and unsteady economy. What troubles me most, though, is the possible risk to our hard-earned savings—and it all stems from the banking industry’s $38 billion exposure to commercial real estate loans that are at risk of default.

COVID-19 dealt the commercial real estate industry a double whammy. First, income plummeted as office buildings emptied and workers were sent home—and many workers never returned. On top of that, runaway inflation has fueled high interest rates that make refinancing mature commercial real estate loans too costly to be a valid option.

And there may not be time to find a good solution. According to commercial real estate data and analytics firm Cred IQ, $1.2 trillion in commercial real estate mortgages are set to mature by the end of 2025.

Building owners face tough choices—and that could spell trouble for regional banks.

The situation has become so bad that record numbers of building owners have decided to take their losses, stop making payments, default on their loans, and forfeit their properties back to the banks. According to data firm MSCI, more than $38 billion of U.S. office buildings are threatened by defaults, foreclosures, or other forms of distress.

That’s the highest amount since Q4 2012, in the aftermath of the global financial crisis that saw the failure of more than 500 banks. And the regional banking segment has the largest exposure to commercial real estate loans within our U.S. banking system.

“You’re going to see a regional bank fail every day…every week, maybe two a week,” said Barry Sternlicht, CEO of investment firm Starwood Capital Group, in a statement to CNBC. He called the current banking situation an “existential crisis” in a January 2024 Bloomberg interview and later predicted $1 trillion of bank losses on office properties alone.

Regional banks are the backbone of American society and may represent a “canary in the coal mine” when it comes to the health of our economy. And that bird is showing signs of distress.

Gold offers unprecedented protection, privacy, and growth potential.

Physical gold has stood the test of time as a safe-haven hedge that can help preserve wealth during times of economic turmoil. Gold owners also benefit from the private nature of this wealth-preserving asset, which can be held securely outside of the traditional banking system and out of harm’s way. And gold prices are setting a series of new all-time records during a rally of historic proportions, with many experts predicting that prices may reach $3,000/oz. and beyond before the year’s end.

There’s never been a better time to protect what we’ve saved for the future. The time to make your move is now, while gold’s momentum continues to build.

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