Part 5/11:
Today, banks are heavily exposed to commercial real estate (CRE). During the low-interest rate environment post-2020, CRE markets thrived because loans were accessible at about 1-2%, and properties could generate returns of 3-5%. But with rising interest rates, the value of these properties is rapidly declining.
Morgan Stanley estimates that CRE values could fall by as much as 40%, a hit comparable to the 2008 financial crisis. US banks hold about $2.7 trillion in CRE loans, with roughly 80% concentrated in regional banks—those not deemed “too big to fail.”