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John Murray predicts a future of banking collapses in the US

Investment expert predicts a future of banking collapses in the US

Jeickson Sulbaran

June 18, 2024 | 9:31 a.m.

Comprehensive Pimco analysis reveals bleak outlook for US regional banks

Banks and lenders in the United States have recently been facing significant challenges due to the Federal Reserve's decisions to keep interest rates high. This policy has increased borrowing costs, which in turn has led to an increase in loan default rates.. Small banks especially have been hit the hardest, caught in a debt whirlwind from which they find it difficult to escape.

Pimco's concerns about the US banking system

John Murray, head of Pimco's global commercial real estate team, expressed concern about the current situation in an interview. According to Murray, lenders have been stuck with assets that are difficult to sell. Meanwhile, the largest banks have managed to shed some of their highest-quality assets to avoid deeper losses. However, regional banks' problems will persist as loans mature, creating a scenario of uncertainty and risk.

The challenge of problem home loans

The high concentration of problem real estate loans on borrowers' books is one of the biggest concerns flagged by Pimco. These loans, which range from shopping malls to offices, present a significant challenge for banks. In the context of higher interest rates, these assets have difficulty meeting extension tests, increasing financial stress on lenders.

Investment expert predicts a future of banking collapses in the US

Pimco's warnings about a possible banking collapse are not isolated. The Federal Deposit Insurance Corporation (FDIC) has also identified difficulties at 63 US banks, signaling a potential risk to the safety of customer deposits. This scenario is reminiscent of the 2008 financial crisis, where the massive collapse of banks had a devastating impact on the global economy.

The uncertain future of US regional banks

Pimco's analysis highlights an uncertain future for regional banks in the United States. With more than $200 billion in loans made by debt funds maturing until 2025, the risk of default and collapse is significant. The current situation is a clear sign that the banking system faces profound challenges that could have long-term consequences.

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