Commercial real estate stress could lead to significant risks for U.S. banks, requiring enhanced risk management

From Investing.com: 2025-07-03 09:49:00

Last week, the Financial Stability Board (FSB) published a report on vulnerabilities in non-bank commercial real estate (CRE) investors, highlighting liquidity mismatches, high leverage, and illiquidity risks in the global CRE market estimated at over $12 trillion. The report warns of potential spillovers to U.S. banks, emphasizing the need for enhanced risk management. U.S. banks face significant exposure through direct CRE lending, off-balance-sheet credit lines, CMBS investments, and financing, as well as exposure to property developers, totaling over $5 trillion. The FSB notes that while REITs and non-bank CRE investors face issues, the real systemic risk lies with banks, especially in the U.S.

The report underscores the importance of thorough due diligence in selecting a safe bank, especially in light of looming risks in commercial real estate, rising consumer debt, and high-risk shadow banking. The analysis reveals that major issues on the larger bank balance sheets pose a greater risk than during the 2008 financial crisis. Community banks with conservative models offer a safer alternative, as larger banks face challenges that have not been adequately addressed. The need for vigilant due diligence to protect hard-earned money from potential systemic risks in the banking sector is paramount.



Read more at Investing.com: Why Commercial Real Estate Stress Could Hit US Banks Harder Than Expected