Scott Rechler, an active member of the board for the Federal Reserve of New York, and is the chairman and chief executive officer of RXR, which is one of the largest owners, managers, and developers of real estate and infrastructure in the New York metropolitan region, gave this revelation last week in a whitepaper that was seen exclusively by Fortune.
In his paper how regional banks will face a “slow-moving train wreck” due to real estate loans maturing over the next several years, especially small and regional banks, which he says will ultimately cause them to shutter their doors, and can be a “systemic issue.”
I think there’s going to be…500 or more fewer banks in the U.S. over the next two years. I’m not saying they’re all going to fail, but they’re going to be forced into consolidation if they don’t fail.
They don’t have a business model that’s going to enable them to stand alone, and be competitive, and retain deposits and service customers the way that they have.
I think when you hear the Treasury or the regulators talk about, ‘Well, with real estate, this isn’t a systemic issue,’ I think they’re really focused on the large systemically important, too-big-to-fail banks. But when you look at the regional banks around the country, they have a significant allocation of their loans to commercial real estate. A lot of it to multifamily developers that are going to have loans that are upside-down.
He wrote
Fortune added: ‘Rechler went on to describe the dreaded “doom loop” that many regional banks may face. As Fortune previously reported, if depositors start to worry that regional banks with excessive CRE exposure could be in trouble, they may begin withdrawing funds. This loss of deposits, coupled with the increasing cost of compliance and insurance for CRE lenders due to regulatory pressure, could lead to more bank failures.’
‘If more banks fail or are consolidated, they will complete the so-called doom loop by lowering the availability of CRE loans, hurting the industry,’ the outlet went on to say.
The crisis will be exacerbated unless we take steps to unclog the financial plumbing and create some liquidity and price discovery in the market.
Rechler warned.
Rechler’s warnings come at the same time Federal Reserve Chair Jerome Powell recently explained that there will be bank failures, specifically regional banks who have higher exposures to commercial real estate, but claims that these collapses are “manageable.”
There will be bank failures, but this is not the big banks. If you look at the very big banks it’s not a first order issue for any of the of the very large banks. It’s more, you know, smaller and medium-sized banks that have these issues.
We’re working with them, we’re getting through it – I think it’s manageable, is the word I would use, but it’s you know it’s a very active thing for us and the other regulators, and it will be for some time.
Powell said during a recent Senate Banking Committee
Moreover, these problems in the banking sector are expected to really intensify in the coming weeks and months, after the Federal Reserve ended their emergency bailout program, Bank Term Funding Program (BTFP), which provided banks struggling to cover withdrawals and losses from their investments that went underwater, as a means of preventing contagion and more collapses in the wake of Silicon Valley Bank’s termination one year ago. Banks up until the program’s end earlier this week were still heavily reliant on the BTFP to remain functional and solvent in the public eye.
In a recent report the Federal Deposit Insurance Corporation (FDIC) admitted that the number of banks showing ‘problems’ rose from 8 to 52 in 2023’s final quarter, the largest increase since three banks failed in rapid succession in March, 2023.
The FDIC did not disclose which banks are on their shortlist but it is reportedly small and medium-sized institutions. The total assets of all banks on this list were $66 billion at the end of last year, or roughly 0.2% of all U.S. bank assets.
Ongoing economic and geopolitical uncertainty, continuing inflationary pressures, volatility in market interest rates, and emerging risks in some bank commercial real estate portfolios pose significant downside risks to the banking industry.
FDIC chair Martin Gruenberg warned.
Commenting on this statement from the FDIC, The Trends Journal gave their outlook on these events:
TREND FORECAST: As we said in forecasting Banks Go Bust a Top Trend of 2024, while banks are setting aside more cash against an expected wave of bad loans to office building owners and other commercial property owners, it will not be enough for the many banks that will fail.
In 2024, the banking sector’s troubles will begin to reach crisis levels in some markets. The number and rate of bank failures will increase, leaving fewer small banks and helping large banks get even larger, reducing the benefits that competition and small companies can offer consumers.
Because banks are a collecting point for economic bad news among consumers and businesses, their stocks will be an early bellwether to watch for the first signs of not only an economic downturn… but most importantly a market crash, as the banksters created to set off the Panic of ’08.
Moreover, Gerald Celente, founder of The Trends Journal, said in a recent interview with The David Knight Show that “according to the Federal Reserve there are about 60 banks suffering from strict defaults coming up. They’re hardly mentioning this at all.”
AUTHOR COMMENTARY
I was unable to find the information Celente referenced in his interview, but Celente is not one to parrot misinformation, so I will take him at his word. If I can find the original source, or someone can provide it to me, I will add it to this report.
The fact is, as I have been reporting and harping for some time, the banking crisis is real and it was coming, and now it’s finally coming home to roost; but it is receiving seldom coverage, and most Americans have zero clue what’s going on.
[3] Do this now, my son, and deliver thyself, when thou art come into the hand of thy friend; go, humble thyself, and make sure thy friend. [4] Give not sleep to thine eyes, nor slumber to thine eyelids. [5] Deliver thyself as a roe from the hand of the hunter, and as a bird from the hand of the fowler. [10] Yet a little sleep, a little slumber, a little folding of the hands to sleep: [11] So shall thy poverty come as one that travelleth, and thy want as an armed man. Proverbs 6:3-5, 10-11
Don’t be negligent to this news friend. Don’t be fearful either, but just be diligent and don’t be lazy. Follow the advice I have been giving:
I URGE you to PLEASE get your money out of the banks. Keep the necessary amounts there to maintain the minimum balances required, and to pay bills and make some online purchases, but otherwise you need to limit your exposure to these places. Credit unions are safer, but not fool proof either. You need to stuff this stuff under your mattresses, a personal safe, just somewhere other the banks. Many will not listen, even after I have incessantly have been sounding off on this since January, 2021 – LONG before most people were even talking about this coming catastrophe, and the commercial real estate bust that was transpiring…
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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