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- A real estate boss expects at least 500 banks to fail or be taken over in the next two years.
- Scott Rechler, CEO of RXR, said the maturing of commercial real estate loans would hit smaller lenders.
- Commercial real estate has been hit by declining asset prices, costlier borrowing, and tighter lending.
Hundreds of American banks will collapse or be taken over by 2026, a top real estate executive predicted.
"I think there's going to be … 500 or more fewer banks in the US over the next two years," RXR CEO Scott Rechler said in a white paper seen by Fortune ahead of publication.
"I'm not saying they're all going to fail, but they're going to be forced into consolidation if they don't fail."
The US has about 4,000 banks, per the Federal Deposit Insurance Corporation, meaning the loss of 500 would represent about a 12% decline.
Rechler rooted his bleak forecast in the fact that more and more commercial real estate (CRE) loans will mature in the coming years, resulting in a "slow-moving train wreck" for smaller banks.
Regional banks are key lenders to the CRE sector. It's been hit by higher interest rates that have depressed asset prices, the remote-working boom that's curbed demand for office space, and a credit crunch as lenders pull back.
CRE developers also rely heavily on debt, and many face the prospect of having to refinance their loans at much higher rates this year and next.
The regional banking industry has also been struggling in recent years. Silicon Valley Bank, Signature Bank, and Silvergate Bank folded last spring after worries about their health spurred a wave of deposit withdrawals.
Meanwhile, New York Community Bancorp's stock plunged 60% in five days earlier this year after the lender set aside over $500 million to cover bad loans.
The catalyst for the banking and CRE woes was the Federal Reserve hiking its benchmark interest rate from nearly zero at the start of 2022 to north of 5% by last summer to cool inflation.
The sharp rise in rates slashed the value of regional banks' mortgage and fixed-income portfolios, stoking concerns about their stability among depositors.
Rechler's warning of widespread bank closures contrasts with JPMorgan CEO Jamie Dimon's recent description of the bank scandals to date as products of "idiosyncratic problems" at particular lenders.