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July 11, 2024

Brief: Vulnerable Banks and Future Commercial Real Estate Losses

Authors: Tom Doolittle, H. Peyton Young, Hashim Hamandi, and Nick Schwartz

The three large bank failures in 2023 exposed how vulnerable banks can be to unrealized securities losses and the rapid exit of uninsured deposits. Nearly one year later, hundreds of smaller banks still have large unrealized securities losses and uninsured deposits that may be vulnerable to significant commercial real estate (CRE) loan losses. A new brief assesses the share of banks potentially in this situation. If future CRE loan losses approach levels reached in prior downturns, many of these banks might have combined CRE loan losses and unrealized securities losses that exceed their shareholders’ equity.