'Shark Tank' star Kevin O'Leary says cracks are forming at regional banks amid high interest rates, and the US should guarantee payroll accounts to keep small businesses safe
- The banking sector is starting to crack amid higher interest rates, Kevin O'Leary warned.
- The "Shark Tank" investor pointed to banking stress stemming from commercial real estate debt.
There's a storm brewing in commercial real estate, and that could mean more turmoil for the banking system, which is saddled with most of the debt in that sector, "Shark Tank" star Kevin O'Leary warned.
The famed small business investor pointed to concerns hanging over the commercial real estate and US office market, with office vacancies recently notching an all-time-high as work-from-home trends continue to persist. That spells trouble for the overall sector, where there's around $1.5 trillion in debt that's set to mature over the next few years, according to some estimates.
Morgan Stanley has estimated that commercial real estate prices could crash as much as 40%. And the turmoil could easily spread to regional banks, which are holding onto 68% 0f all commercial real estate loans, Bank of America estimated.
"So during this transition of consolidation, or failure, or amalgamation, or whatever's going to these regional banks – and believe me, the cracks are coming fast and furious – everybody sees it coming," O'Leary said of office buildings in an interview on Fox Business on Friday.
Previously, he's warned on the death of regional banks as the sector goes through a "metamorphosis," which could take regional bank stocks "to zero."
To protect against wider spillover effects from a bank failure, O'Leary suggested on Friday that the US should extend its deposit insurance for payroll accounts.
Many businesses have over $250,000 in deposits, the maximum amount insured by the FDIC, in accounts that they use to make payroll.
A 24-month insurance policy on up to $100 million in bank deposits, with no extra interest on the accounts, could instill more confidence in the banking sector, O'Leary said.
Banking fears have faded since the collapse of Silicon Valley Bank earlier this year, though a handful of commentators remain concerned over the stability of the US financial system.
Fitch, for instance, said it may downgrade a handful of US lenders in August. Meanwhile, the SPDR S&P Regional Banking exchange traded fund has continued to struggle, with shares down 30% from levels at the start of the year.