US creditors risk triggering new financial crisis, IMF warns

The SVB crisis has shown that even smaller banks can pose a serious risk to financial stability, according to the IMF. Credit: Stephen Senn/AP

Shares of U.S. regional banks fell 10% last month as investor concerns about the issue grew, fueling worries about risks to the financial system.

Implications coming out far beyond the US: UK markets and investors are excited The SVB episode.

Credit Suisse collapsed and was rescued by UBS after the crisis, while British investment funds struggled to navigate chaotic bond markets.

The IMF warned that the SVB crisis showed that even smaller banks can represent serious risk to financial stability.

It states: “The high concentration of CRE [commercial real estate] risks poses a significant risk to small and large banks amid economic uncertainty and higher interest rates, potential declines in property values ​​and deteriorating asset quality.”

Small banks maintain «exceptionally high concentrations of CRE, the loss of which could jeopardize their safety and soundness,» the report added.

Nearly a third of U.S. banks have commercial real estate loan books that are so large relative to their buffers capital that they exceed regulatory requirements.

U.S. real estate is under increasing stress from low rental rates, while rising defaults are adding to the woes of the banks that lent to the market.

The IMF said authorities must remain vigilant to keep the stress in check. and reduce the risk of the next financial crisis.

SVB's collapse last March was caused by banks failing to adjust to higher interest rates after a long period of rock-bottom rates.

The IMF criticized management banks for their approach, saying they «failed to adequately manage the associated interest rate and liquidity risks, presumably believing that inflation would be temporary.»

The US Federal Reserve attempted to support the financial system after the collapse of SVB , including strengthening supervision of banks that have higher liquidity and interest rate risks.

The Fed is also closely monitoring a possible deterioration in commercial real estate lending.

The IMF praised the US authorities for successfully containing the immediate threat to the financial system from SVB.