There is a growing risk that stresses on small banks and commercial real estate escalate into a negative feedback or \u0027doom\u0027 loop. Read on
Today, small banks face a similar dilemma, said Ashworth. “As money market rates rise, do you match those higher rates, which eats into profit margins, or do you stand by and watch as depositors seek higher returns elsewhere?”
Commercial real estate, which accounts for 43 per cent of small bank loans in the U.S., would be the most affected if banks continue to rein in lending to cope with a flight in deposits. Small banks provide the lion’s share of commercial real estate lending, with $1.9 trillion in such loans outstanding, more than double the $0.9 trillion held by big banks.
Highly leveraged commercial real estate always struggles when interest rates are high, and it now faces even more headwinds as the rise of remote work and online retail sales sap demand for office and store space.played down the risks at his press conference on March 22, when the Federal Reserve raised its rate by 25 basis points.
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