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U.S. Federal Reserve is driving America into a banking crisis
The Federal Reserve has brought the US to the brink of another banking crisis, according to a former IMF official. Desmond Lachman claims in an article for the think tank The American Enterprise Institute that Fed Chair Jerome Powell is provoking a banking crisis. Through tight monetary policy and low liquidity, the Fed is exacerbating the banking system's existing problems. Lachman warns of a severe economic downturn and a possible crisis in the real estate sector, which could result in the failure of many small and medium-sized banks. Read the full article here.
U.S. Federal Reserve is driving America into a banking crisis
A former International Monetary Fund (IMF) official believes the US Federal Reserve (Fed) has brought America to the brink of another banking crisis. In a new blog post for think tank The American Enterprise Institute (AEI), Desmond Lachman, deputy director of the IMF's policy development and review division, says Fed Chair Jerome Powell is "inviting a banking crisis." Lachman argues that the Fed is making the situation worse through its restrictive monetary policy and low liquidity in banks.
The former IMF employee sees this as a mistake that increases the chances of a hard landing for the US economy and pushes financial institutions to the brink of a new banking crisis. Lachman emphasizes that the commercial real estate segment, which makes up a large part of US banks' loan portfolios, is a weak point for the industry and could lead to the failure of around 385 small and medium-sized banks.
According to Lachman, more than $900 billion in commercial real estate loans are due for repayment this year alone. It is unlikely that these loans can be refinanced again without major restructuring, especially given the significantly higher interest rates compared to the time of borrowing.
For regional banks, which are an important source of financing for small and medium-sized businesses, a wave of commercial real estate loan defaults could be particularly problematic. Commercial real estate loans account for about 18% of these banks' total loan portfolios.
It is important to note that this blog post is the assessment of one individual and does not necessarily reflect the views of the IMF, AEI or other parties involved.
Possible effects
A banking crisis in the USA could have far-reaching effects on global financial stability. As the 2008 global financial crisis demonstrated, banking crises can lead to a chain reaction in which banks collapse, loans default, and lending comes to a standstill. This could lead to a recession and threaten the stability of the global financial system.
The regional economy and small and medium-sized companies in particular could be affected by a banking crisis. If banks have large amounts of non-performing loans and restrict lending, companies could struggle to obtain financing. This could lead to bankruptcies and job losses.
Another possible outcome of a banking crisis in the USA would be government intervention to save the banks. To prevent a collapse of the financial system, governments may be forced to provide financial support to banks and possibly nationalize them. This would have a significant impact on households and taxpayers who would have to bear the costs.
Historical facts
The 2008 financial crisis was one of the worst financial crises in U.S. history and had a serious impact on the global economy. Originally triggered by the collapse of the US real estate market, the crisis led to a large number of bank failures and a severe recession.
The crisis was triggered by a combination of uncertain credit, risky bank behavior, excessive private debt and inadequate government supervision. It led to comprehensive reforms of financial regulation and a reassessment of risks in the banking sector.
Table: Information on potentially affected banks
| bank | Size | Current condition |
|---|---|---|
| Bank A | Small | Stable |
| Bank B | Medium size | Endangered |
| Bench C | Large | Stable |
| Bank D | Small | Endangered |
| Bank E | Medium size | Stable |
| Bank F | Large | Endangered |
The above table is intended as an example only and is not based on current data or information.
Conclusion
Former IMF official Desmond Lachman's assessment that the US Federal Reserve could lead America into a banking crisis exposes the potential risks of restrictive monetary policy and low liquidity in banks. The commercial real estate segment in particular could pose a major challenge for the industry and result in the failure of many small and medium-sized banks.
A banking crisis would have far-reaching effects on the economy and financial stability, both in the United States and globally. Historical experience shows that government intervention and comprehensive reforms may be necessary to stabilize the financial system and limit damage to companies and society. It remains to be seen whether Desmond Lachman's assessment will come true and what measures will be taken to contain the risk of a banking crisis.