Banking crisis is unlikely to end anytime and the collapse of the First Republic bank last week could be just the beginning
Banking crisis is unlikely to end anytime and the collapse of the First Republic bank last week could be just the beginning. While bank runs were the primary reason for the First Republic collapse, commercial real estate loans could be the next big risk for many banks. Three regional banks in the U.S. have already failed and the repercussions are now felt on smaller and mid-sized bank, which witnessed some of the biggest losses yesterday.
According to Andrew Axelrod, global macro and Bitcoin expert, the banking crisis is just getting started and could deepen if commercial real estate collapses as many banks are exposed to the sector. The culture of remote working (which translates to more open office spaces) and companies downsizing their assets are the two major factors which are most likely to contribute to the downfall of commercial real estate sector.
Axelrod’s comments reaffirm the views of Tesla CEO Elon Musk and Vice Chairman Charlie Munger of Berkshire Hathaway, who have both cautioned about the dangers of commercial real estate lending. Axelrod also added that a big issue is most likely to occur as mortgages mature because people withdraw money from banks and invest in T-bills due to the higher yield.
Gold continues to trade above $2,000 an ounce, following another 25bps interest rate hike and Federal Reserve Chair Jerome Powell indicating a potential pause in future rate hikes. As per the release of May hike, Fed said, “We will determine whether future increase is necessary” in contrary to “We anticipate that future hike is necessary” as per the last release, which is a gesture of pause in interest rates hike.
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