14% of CRE Bank Loans Are in Negative Equity: Study

The property values are less than the loan balances and one-third may encounter cash flow problems and refinancing challenges.

CRE-backed bank loans may be in worse shape than realized, according to a new study by researchers at the University of Southern California, Northwestern University, Columbia University, and Stanford University. That isn’t good when, as they noted, commercial real estate loans comprise a quarter of assets for an average bank and $2.7 trillion of total bank assets.

Using loan-level data, the researchers built on previous work of others to analyze the effect of rising interest rates on U.S. bank assets, stability, and the likelihood of sudden depositor withdrawals that forced the closure of banks earlier this year. This new study adds how credit risk can further affect bank assets.

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Erik Sherman

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