HSBC’s 2Q25 results reveal that the situation in the global CRE market continues to deteriorate at a very concerning pace. Although HSBC is a UK bank, it now generates the majority of its revenues in Asia, particularly from Hong Kong and mainland China. In fact, Hong Kong is the single largest revenue contributor for HSBC by geography, and the bank is also the largest CRE lender in Hong Kong.According to HSBC’s 2Q financial report, CRE loans classified as having increased credit risk have almost tripled since the start of 2025, rising from $6.5B to $18.1B. At the same time, impaired loans grew from $4.5B to $5.1B. These increases suggest that 73% of HSBC’s Hong Kong CRE loans are now either impaired or marked as having elevated credit risk. By comparison, this share was 30% a year ago, indicating a major deterioration over the past 12 months.Moreover, Hang Seng Bank—HSBC’s local lender in Hong Kong—had a total bad-loan ratio of 6.7% as of the end of 2Q25, which is already higher than the GFC peak and the highest it has ever been, including during the Asian financial crisis in 1999.In its report, HSBC highlights a major refinancing risk in the CRE space:“Commercial real estate lending tends to require the repayment of a significant proportion of the principal at maturity. Typically, a customer will arrange repayment through the acquisition of a new loan to settle the existing debt."Refinancing risk is the risk that a customer, being unable to repay the debt at maturity, fails to refinance it on commercial terms.”Indeed, as the table below shows, the majority of HSBC’s CRE loans have maturities of less than two years:Source: Company dataAccording to Cushman & Wakefield, Hong Kong office rents have fallen by more than 20% since 2022, while the vacancy rate has risen to 19%.Source: ReutersHSBC’s report offers a useful read-through for U.S. banks. There are many similarities between the Hong Kong and U.S. CRE markets. Like Hong Kong, U.S. CRE prices nearly tripled between 2010 and 2022, then fell by about 20% after 2022, with office prices down nearly 40%. In fact, the true slump is likely deeper because most U.S. CRE assets have not been reappraised since 2022.HSBC is exposed to Hong Kong CRE; however, these loans are not large relative to the bank’s total credit portfolio and equity. As such, HSBC can classify as much as 73% of its Hong Kong CRE loans as risky. If you follow our banking work, you know that Aareal Bank (Germany) and Manulife (Canada) have also classified the majority of their U.S. CRE loans as bad or non-performing, as their exposures are relatively small compared with their total books and capital positions.It’s a different story for U.S. banks. Given their extremely high CRE exposures, they simply cannot reclassify these loans without going underwater. In a previous article, we discussed Florida Atlantic University’s update to its “U.S. Banks’ Exposure to Risk from Commercial Real Estate” screener. As of YE2024, among roughly 5,000 U.S. banks:1,788 have total CRE exposure greater than 300% of total equity capital;1,077 are above 400%;504 are above 500%;216 are above 600%.As you can see, nearly 2,000 U.S. banks could be at risk of failure. Moreover, given HSBC’s disclosure that as much as 73% of its Hong Kong CRE loans are risky, even U.S. banks with CRE exposure greater than 100% of equity appear to face elevated risk.As we’ve said in our articles, the U.S. CRE crisis hasn’t truly begun, because banks have adopted an “extend and pretend” strategy. Notably, even the Fed has confirmed that U.S. banks are extending impaired CRE mortgages to avoid recognizing losses, leading to credit misallocation and a buildup of financial fragility. As a result, banks face a looming “maturity wall,” which is expected to peak between late 2025 and 2027.Source: NY FedThe NY Fed noted that the likelihood of a large, sudden hit to bank capital rises as the maturity wall grows. Such a hit poses two risks.First, it could trigger runs by depositors—or, more broadly, liquidity providers—because of solvency concerns, especially if banks are sitting on large mark-to-market losses in their securities portfolios. This is a particular concern for retail depositors because non-retail depositors typically have access to more information and tend to withdraw first; as history shows, liquidity runs can unfold within a single day.Second, it could set off a wave of foreclosures or secondary-market sales of CRE loans, imposing fire-sale externalities on other financial intermediaries by depressing the market values of CRE debt and the underlying properties. This would pose a major risk to overall economic and market stability. All of this reinforces our long-standing, very cautious stance toward banks with high CRE exposure, which we have advocated for several years.Believe it or not, there are more major issues on the larger bank balance sheets as compared to smaller banks, which we have covered in past articles. Moreover, consider that there was one major issue which caused the GFC back in 2008, whereas today, we currently have many more large issues on bank balance sheets. These risk factors include major issues in commercial real estate, rising risks in consumer debt (approaching 2007 levels), underwater long-term securities, over-the-counter derivatives, high-risk shadow banking (the lending for which has exploded), and elevated default risk in commercial and industrial (C&I) lending. So, in our opinion, the current banking environment presents even greater risks than what we have seen during the 2008 GFC.Almost all the banks that we have recommended are community banks, which do not have any of the issues we have been outlining over the last several years. Of course, we’re not saying that all community banks are good. There are a lot of small community banks that are much weaker than larger banks. That’s why it’s absolutely imperative to engage in a thorough due diligence to find a safer bank for your hard-earned money. And what we have found is that there are still some very solid and safe community banks with conservative business models.So, I want to take this opportunity to remind you that we have reviewed many larger banks in our articles. But I must warn you: The substance of that analysis is not looking too good for the future of the larger banks in the United States, and you can read about them in the prior articles we have written.Moreover, if you believe that the banking issues have been addressed, I think that New York Community Bank is reminding us that we have likely only seen the tip of the iceberg. We were also able to identify the exact reasons in an article which caused SVB to fail. And I can assure you that they have not been resolved. It’s now only a matter of time before the rest of the market begins to take notice. By then, it will likely be too late for many bank deposit holders.At the end of the day, we’re speaking of protecting your hard-earned money. Therefore, it behooves you to engage in due diligence regarding the banks which currently house your money.You have a responsibility to yourself and your family to make sure your money resides in only the safest of institutions. And if you’re relying on the FDIC, I suggest you read our prior articles, which outline why such reliance will not be as prudent as you may believe in the coming years, with one of the main reasons being the banking industry’s desired move towards bail-ins.