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$2 trillion investment fund warns of more U.S. bank failures

$2 trillion investment fund warns of more U.S. bank failures

In a not-exactly-the-same but nonetheless unwelcome echo of 2008, Pacific Investment Management Co. (PIMCO) – an investment manager giant – warned that the U.S. may soon face another major wave of bank collapses.

According to PIMCO, many regional banks in the country are under duress due to them holding significant concentrations of troubled commercial real estate loans.

John Murray, PIMCO’s head of global private commercial real estate, also warned that the real wave of distress is only at its start, though he added that as the dangerous loans start reaching maturity, banks will likely start attempting to offload them to reduce exposure.

Pacific Investment Management, however, believes that the situation is not dangerous for the major banks. 

Nonetheless, a regional banking crisis remains a troubling prospect, particularly after the scare caused by the chain of collapses that took place in the spring of 2023.

Increasing number of regional banks facing insolvency

Even before PIMCO’s warning, U.S. banks were heavily scrutinized. 

Earlier in June, Federal Deposit Insurance Corporation (FDIC) published a report indicating that American banks are sitting on approximately $517 billion in unrealized losses

The report also stated that despite the current issues leading to an expansion of the Problem Bank List – a list of banks at risk of insolvency – the number is still within non-crisis bounds.

Nonetheless, another worrying echo of 2008 emerged as many of the issues that banks are facing come from their exposure to residential mortgage-backed securities.

Additionally, PIMCO’s warning and the FDIC report come as there are significant fears about the future performance of the American economy.

In recent years, there has been a massive increase in public debt, and the debate on when the Federal Reserve (FED) might start lowering interest rates – as well as what the actual impact of such a move may be – continues raging.

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