We are surprised there wasn’t much commentary about the Fed’s Jerome Powell saying there would be more bank failures. Here is a snippet from The Hill:
Powell said the banks that are in trouble with falling office space and retail assets are not the big banks, which were designated as “systemically important” in the aftermath of the 2008 financial crisis. That episode, which resulted in a taxpayer bailout of the financial sector, was also triggered by unsound real estate assets.
Rather, the banks at risk of failure now Powell identified as smaller and medium-sized.
“This is a problem we’ll be working on for years more, I’m sure. There will be bank failures,” he said during a Thursday hearing on the Fed’s monetary policy in the Senate Banking Committee.
Source: TheHill.com
The fundamental question is whether downtown office areas will ever recover to their glory days of the past. With unemployment under 4 percent and most downtown office centers experiencing 20% vacancy rates, we just don’t understand where the people will come from to fill these buildings.
If we enter a recession, unemployment will grow and that will further exacerbate office vacancies so where does commercial real estate go from here? All we know for sure is to avoid holding money in small and medium sized banks for now.
We will research this topic and post on it in the future so stay tuned, stay profitable and stay solvent…