The new banking crisis
What's actually going on
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Zions bank stock fell from $54.03 to $46.93 on 16th October.
That small drop led to Zions losing a billion dollars of its valuation in a single day. This came after the bank disclosed something disturbing to the public: It had made over $60 million in loans to a borrower named Cantor Group and these loans were unlikely to be ever paid back. Cantor Group hadn’t defaulted on the loans – they had siphoned off the funds through an elaborate scheme by backing it with collateral they didn’t have.
Zions only got to know about the fraud because Cantor had pulled off something similar with another bank, Western Alliance, who were suing Cantor for the stunt.
Meanwhile, another bank named Jefferies admitted that it might face millions of dollars in losses because it was defrauded by one of its borrowers, the bankrupt auto part company Auto Parts. While these stocks all fell on Thursday and mildly recovered on Friday, it sent a scare down Wall Street’s spine.
Other banks are slowly revealing that they’re taking major hits. The KBW bank index, a basket of banking stocks tracked by investors is down by 7% this month. The last time something similar happened, we saw some big names collapse like dominoes: Silicon Valley Bank, Signature, and First Republic, all fell one after the other. Now the fear is that a “new banking crisis” is making its way through the market. Except this time, it’s not just the banks that are in trouble. It’s the entire financial system that’s starting to crack from the inside out.
Most people don’t realize that the U.S. banking system is currently sitting on hundreds of billions of dollars in unrealized losses. Regulators have allowed them to borrow even more money to stay afloat, and this has become so widespread that even the CEO of JP Morgan is warning that “more cockroaches will emerge.”
That’s why it’s crucial to understand exactly what’s going on, how this might affect you, which banks are most at risk, and most importantly, what you can do right now to protect yourself.
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How We Got Here
All of this starts with the original banking crisis. Here’s the quick version in plain English.
Banks operate on something called fractional reserve banking. This means banks are only required to keep about 10% of their customers’ deposits accessible for withdrawal at all times. Imagine it like this:
You give me $1000 to hold for safekeeping. I keep $100 and lend $900 to someone else. That person deposits the $900, and their bank lends out $810 to someone else, and so on. The entire system relies on everyone having faith that not all customers will want their money back at the same time.
The benefit is that this system gives people like you and me greater access to an expanded pool of money, and the ability to earn interest on our deposits. The risk is that it relies entirely on confidence. If too many people lose trust and ask for their money back at once, the entire system can break.
Now, to be fair, banks don’t just lend endlessly to other banks. In most cases, they take your deposits, loan out a portion of them, and invest the rest in very safe, stable assets. This ensures that as long as those investments are held to maturity, everyone gets paid and the bank makes a small profit. But during 2020 and 2021, something changed.
Interest rates were held near zero to stimulate the economy during the pandemic, and that sent a flood of money into the banking system.
However, banks don’t just sit on that cash. To earn a bit of interest, they often invest in U.S. Treasuries or long-term loans. In this case, banks had so much money and rates were so low that they poured a large share of those deposits into low-yield government bonds.
Except there was a problem: Nobody expected the Fed to hike rates as rapidly as they did. When the rate hikes kicked in, the value of those bonds plummeted. Under normal circumstances, that wouldn’t be an issue because those bonds would simply be held until maturity. But smaller banks were the exception. When their customers began withdrawing deposits all at once, it created a liquidity crisis. Those banks couldn’t sell the bonds fast enough without taking huge losses.
The result was the collapse of Silicon Valley Bank, Signature, and First Republic in 2023. I covered these as they were happening in 2023, and the similarities are eerie:
So, what does that have to do with today?
Just like those banks had their money locked up in long-term Treasuries that fell in value, today’s banks are holding assets that are also sinking. This time, it’s happening in commercial real estate.
The Commercial Real Estate Problem
During the period when Treasuries were paying next to nothing and deposit accounts yielded less than 1%, commercial real estate was booming. Borrowing money at 1–2% to buy a building yielding 3–4% looked like an easy win. As a result, property values soared 10–30% depending on the type of building, and banks were eager to hold those loans because they were flush with cheap money.
Now that interest rates have increased, that boom has turned to bust. Morgan Stanley estimates that commercial property values could fall by as much as 40%, roughly the same magnitude as the 2008 financial crisis.
CNN reports that U.S. banks hold around $2.7 trillion in commercial real estate loans, and about 80% of those loans sit on the books of smaller regional banks. The big banks are considered “too big to fail,” but the smaller ones don’t have this privilege. Unlike 30-year fixed-rate mortgages, commercial real estate loans typically reset after 3–7 years. According to the data firm Trepp, more than $2.2 trillion will come due between now and the end of 2027.
Many borrowers will struggle to refinance at higher interest rates. When rates go up, property values go down.
For example, imagine a $1 million building that earns $60,000 a year: a 6% return on the cost of the house. If interest rates decline to 1%, that building might sell for $1.5 million. Cheap credit boosts valuations, and the return drops to 4% of the value. Your profit is 3% on your investment.
But if rates spike to 6%, that same building may only sell for about $666,000. Why? Now to make the same profit of 3%, the return on the same rent is 9% of your building’s value. Investors would demand more yield for higher borrowing costs and bargain for lower prices.
That’s why rising rates are now hammering commercial real estate, and why it’s spilling over into the banking sector.
Why Regional Banks Are Feeling the Heat
When large investors buy commercial property, they often prefer smaller regional banks because those lenders know the local markets better than national giants like JP Morgan. Regional banks are more flexible, more relationship-driven, and often more willing to take on risk. They’ll underwrite deals based on personal knowledge, rather than relying on spreadsheets. That flexibility can be good in boom times, but when the cycle starts turning, it could get dangerous.
As a result, many regional banks now have 30–50% of their balance sheets tied to commercial real estate loans, and not all of those loans will hold their value. More than $1 trillion in debt comes due by the end of 2025 and defaults are already beginning. Some of these banks may soon discover that their collateral isn’t worth what they thought it was.
So what does that mean for the rest of us?
The New Trigger
When Zions Bank disclosed a $50 million charge-off tied to borrower fraud, and Western Alliance revealed a lawsuit over fraud-related losses, concerns about “bad loans” started spreading in the market. Jamie Dimon, JP Morgan’s CEO, summed it up: “When you see one cockroach, there are probably more.”
The situation was pretty severe. Several banks had to tap into overnight liquidity for the second day in a row. This was something not seen since the 2020 pandemic. So how is this still happening?
Back in 2008, regulators passed rules to stop banks from making risky loans. But banks found a loophole. If they lent money to non-bank financial firms, who then made the loans, they were technically off the hook. This created an entirely new “shadow banking” industry that has exploded to over $1 trillion in loans, often made without traditional collateral or oversight.
As one analyst put it: “I didn’t know it was so easy for a bank to think they had $50 million in collateral and find out they had zero.” When stories like that start circulating, investors panic and stocks start to sell off. And the word “crisis” starts trending again.
Should You Worry?
Here’s the reality: there’s a big difference between national and regional banks.
National banks like Chase, Wells Fargo, and Bank of America are in a much stronger position. They’ve been stress-tested to withstand a 33% drop in commercial real estate prices, have diversified portfolios, and access to liquidity from the Fed if things go wrong. Even if they take losses, they’re considered “too big to fail.”
However, smaller regional banks have more concentrated exposure to commercial real estate. Losses there could be painful. They’ll likely tighten lending, scrutinize borrowers more closely, and operate cautiously for the next year or two.
Still, it’s not 2008. Moody’s recently stated that “the banking system and private credit markets are sound.” They added that “one cockroach does not make a trend.” Default rates on high-yield debt are under 5%, compared to double digits during the financial crisis. That’s encouraging, but it doesn’t mean you should ignore the risks.
What This Means for You
From my perspective, this looks like a mild overreaction. The markets have been stretched for months, and investors are jumpy. When you combine high valuations with headlines about fraud, China negotiations, a potential government shutdown, and soaring gold prices: fear spreads fast.
But if you’re wondering how to protect yourself, here’s the simple playbook:
Don’t keep more than $250,000 in a single account. That’s the FDIC insurance limit. Remember that not a single person has lost their funds after being FDIC insured.
Spread your cash across multiple institutions.
Stick to reputable, well-capitalized banks.
Maintain a reasonable emergency fund outside your main brokerage.
I personally keep money spread across several large banks like Chase and Bank of America. It’s not about panic. It’s about diversification. Don’t keep all your eggs in one basket. A single unexpected event can shake the system in ways no one predicts, even when you’ve done everything right.
Even though banks are sitting on unrealized losses, those losses should shrink as interest rates eventually fall. Over time, things will normalize. So stay diversified, stay patient, and remember: every few years, the headlines will say “crisis.” Most of the time, it isn’t the end of the world. It’s just the market doing what it always does: testing your ability to stay calm.
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If I used a mortgage broker for my 30 year, small multi-family mortgages, are those lenders at risk of going under? If they do, what does that mean for my loan and terms?
Completely unrelated to your article, so apologies; Mizkif is blowing up in a bad way. You guys be careful. Keep up the good work. It matters.