Former IMF official Desmond Lachman believes the US Federal Reserve’s policies are pushing the country to the brink of another banking crisis.
Tight Monetary Policy, Thin Liquidity
Lachman argues that the Fed’s tight monetary policy and limited liquidity are putting pressure on banks. He believes this is a mistake that increases the risk of a severe economic downturn and a banking crisis.
Commercial Real Estate as Achilles Heel
Lachman highlights commercial real estate as a major vulnerability for banks. With over $900 billion in commercial property loans due this year, he warns that a wave of defaults could threaten the stability of small and medium-sized banks.
Hundreds of Lenders at Risk
Lachman estimates that around 385 small and medium-sized banks could fail if commercial property loans go bad. These banks play a crucial role in financing small businesses, so their collapse would have a significant impact on the economy.
Lessons from 2021
Lachman draws parallels to the Fed’s actions in 2021, when it ignored expansionary fiscal policy and flooded the market with liquidity. He believes the Fed is now making the opposite mistake by keeping monetary policy tight despite the looming banking crisis and weakening global economy.
