Real Estate

Billions of Dollars of Bad Real-Estate Debt Could Mean Big Bank Losses

  • Lenders, including major banks, are expanding their provisions to guard against loan losses.
  • The rapidly growing reserves reflect concerns about the health of commercial-real-estate debt.
  • The provisions put a drag on earnings, curtail lending, and could spur a cash crunch for some banks.

This earnings season, some major banks bucked tumult in the sector by raking in record revenues and surpassing Wall Street expectations.

But a blemish is building on the balance sheets of a growing number of financial institutions, in the form of cash reserves that banks and other lenders are required to collect against expected loan losses — including souring debts tied to commercial real estate. 

The reserves, stagnant money that doesn’t earn a return, place a drag on earnings, curtail lending, and show how hundreds of billions of dollars of problem real-estate assets, such as office buildings, are beginning to inflict wider financial damage.

The US’s four

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