US lenders risk triggering financial crisis, warns IMF

THE world is at risk of another financial crisis caused by US lenders’ reckless exposure to stricken commercial property markets, the International Monetary Fund has warned.

In a research paper on financial stability, the IMF said that a “weak tail of banks” had gorged on US commercial real estate and could create a repeat of the chaos last year triggered by the collapse of Silicon Valley Bank (SVB).

The lender blew up last March in a failure that raised questions about the safety of smaller US players and the damage they could cause to financial stability. The subsequent collapses of Signature Bank and First Republic Bank contributed to the worst market turmoil since the 2008 global financial crisis.

The IMF said yesterday that small and regional US regional banks’ exposure to commercial property was the main threat to financial stability, given around two thirds of US banks’ $3trillion (£2.4trillion) position sits on small lenders’ balance sheets. Regional US bank stocks plummeted 10pc last month because of growing investor fears about the issue, fuelling concerns over the risks to the financial system.

The implications go far beyond the US, with UK markets and investors roiled by the SVB episode.

Credit Suisse collapsed and was rescued by UBS in the wake of the crisis, while Uk-based investment funds struggled to navigate chaotic bond markets. The IMF warned that the SVB crisis showed even smaller banks could pose serious risks to financial stability.

It said: “The high concentration of CRE [commercial real estate] exposures represents a serious risk to small and large banks amid economic uncertainty and higher interest rates, potentially declining property values and asset quality deterioration.”

US real estate is increasingly stressed owing to low tenancy rates.

$3 trillion US banks’ exposure to commercial property, of which two thirds sits on small lenders’ balance sheets