Staggering stat from the WSJ.
Banks are doing some serious can kicking so they don’t have to mark down losses on loans
Only 25% of CRE loans were paid in full. Where are the regulators to end this BS?
Lenders have the banks by the balls. The whole thing is a giant sham pic.twitter.com/Ns7tEGuBYI
— QE Infinity (@StealthQE4) April 7, 2024
The fact that banks are allowing loans to remain outstanding without fully accounting for potential losses is concerning because it may indicate a lack of transparency and proper risk management. Additionally, the low rate of full payment on commercial real estate loans suggests that there could be underlying issues in the real estate market, such as over-leveraging or declining property values, which could pose risks to financial institutions and the broader economy if left unaddressed. Regulators play a crucial role in overseeing the banking sector to ensure that proper lending standards are maintained and systemic risks are mitigated. Therefore, it’s essential for regulators to closely monitor these developments and take appropriate actions to safeguard financial stability.
In 2008, leading up to the financial crisis, there were several warning signs and practices in the banking and real estate sectors that are reminiscent of the current situation with commercial real estate loans (CMBS):
Subprime Mortgage Crisis: In the mid-2000s, there was a surge in subprime mortgage lending, where banks extended loans to borrowers with poor credit history or low income. Many of these loans were bundled into mortgage-backed securities (MBS) and sold to investors. Similarly, the current situation with CMBS involves loans that may have been issued without adequate scrutiny, leading to concerns about loan quality and potential defaults.
Lack of Transparency: Prior to the financial crisis, there was a lack of transparency in the mortgage market, with complex financial products being created and sold without clear understanding of the underlying risks. Similarly, the complexity of CMBS and the opaque nature of some lending practices today raise concerns about whether investors fully understand the risks they are exposed to.
Over-leveraging: In the lead-up to the 2008 crisis, excessive leverage was prevalent in the banking and real estate sectors, with firms borrowing heavily to finance their activities. Similarly, the high levels of debt associated with some commercial real estate loans today raise concerns about the ability of borrowers to service their debt in the event of an economic downturn or property market correction.
Regulatory Oversight: Prior to the financial crisis, regulatory oversight of the banking and financial sectors was inadequate, with regulators failing to identify and address systemic risks in a timely manner. Similarly, questions have been raised about the effectiveness of regulatory oversight of the CMBS market and whether regulators are adequately monitoring lending practices and systemic risks.
These parallels highlight the importance of vigilance and regulatory oversight in the banking and real estate sectors to prevent the recurrence of past mistakes and mitigate the risks of financial instability.