JPMorgan Chase Warns US Commercial Real Estate Will Cause Next Banking Crisis, A Credit Cycle Will End

Deposit runs have led to the collapse of three U.S. banks this year, but the banking crisis may not be over.

On Monday ET, JPMorgan Chase & Co. Chief Executive Jamie Dimon warned that US commercial real estate is the sector most likely to bring the next crisis to the banking industry.

During a question-and-answer session at the JPMorgan Chase Investor Conference, Dimon said of the U.S. lending and banking crisis:

The U.S. banking sector has seen historically low loan defaults over the past few years, thanks to low interest rates and the flood of stimulus money unleashed during the COVID-19 pandemic. But that has changed dramatically since last year as the Fed has been raising interest rates to fight inflation.

Commercial buildings in some areas, including the U.S. tech hub of San Francisco, could be particularly hit, Dimon said.

This is because, after the COVID-19 pandemic, many companies still used the mode of telecommuting adopted during the pandemic. Office workers were reluctant to return to the office, and the demand for commercial buildings also dropped sharply. This situation is especially true in the technology industry.

Credit will tighten in the future

Dimon predicted: "A credit cycle will end. My point is that this would be perfectly normal. “

For example, if U.S. unemployment rose sharply, the credit card loss rate could soar to 6% or 7%, Dimon warned, though that would still be below the 10% seen during the 2008 crisis.

In addition, Dimon said banks -- especially the smaller ones that have been most affected by the recent financial turmoil -- need to prepare for interest rates to be much higher than most expect.

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