Commercial real estate exposure and bank counterparty risk

Detailed analysis of December 2023 bank regulatory data suggests that unrealised interest rate losses in the banking system amplify banks' true commercial real estate (CRE) loan concentrations making CRE exposures much more consequential than traditional supervisory CRE loan concentration measures suggest. Taken together, weak demand for several types of commercial properties, sustained unexpectedly high interest rates and the concentration of CRE loans in many bank portfolios may magnify the risk of many financial institution's uncollateralised exposures to bank counterparties.