---
title: 'The Fed Just Quietly Confirmed The Crisis Wall Street Hoped You Wouldn''t Notice'
source: 'https://youtube.com/watch?v=UBs970TEUrw'
video_id: 'UBs970TEUrw'
date: 2026-06-29
duration_sec: 1104
---

# The Fed Just Quietly Confirmed The Crisis Wall Street Hoped You Wouldn't Notice

> Source: [The Fed Just Quietly Confirmed The Crisis Wall Street Hoped You Wouldn't Notice](https://youtube.com/watch?v=UBs970TEUrw)

## Summary

The Federal Reserve's semiannual banking report states that the US banking system is well-capitalized and profitable, but it highlights three key concerns: private credit defaults, commercial real estate loan defaults, and large paper losses at banks. The video analyzes these risks and notes that the Fed is simultaneously loosening bank supervision, potentially allowing problems to grow unnoticed.

### Key Points

- **Fed Report Overview** [0:00] — The Fed's semiannual report says 99% of US banks are well-capitalized and profits are healthy, but there are three specific concerns.
- **Concern 1: Private Credit Defaults** [1:35] — Private credit (non-bank lending) has boomed to over $1 trillion. Rising interest rates and AI disruption have led to defaults and fund freezes by Blackstone, BlackRock, and Blue Owl. Banks are exposed via loans to these funds.
- **Concern 2: Commercial Real Estate Defaults** [7:27] — Delinquencies on CRE loans remain above decade averages due to low office demand post-pandemic. A wave of loan readjustments in 2026 at higher rates could increase defaults, especially for smaller regional banks.
- **Concern 3: Paper Losses at Banks** [10:19] — Banks hold ~$98 billion in unrealized losses on treasuries bought when rates were low. A proposed rule in March 2026 would require large banks to report these losses, potentially revealing worse financial health.
- **Fed's Contradictory Response** [13:53] — Despite these concerns, the Fed is loosening supervision: deprioritizing procedural shortcomings, closing supervisory findings, and redefining 'well-managed' to make it easier for banks to qualify.

### Conclusion

The Fed acknowledges three systemic risks—private credit, CRE, and paper losses—yet is simultaneously reducing oversight. This creates a scenario where problems may only be caught after they become significant threats.

## Transcript

The Federal Reserve Bank just published
their semianual banking system report
card and they said that the US banking
system looks good, but there are some
things that they're worried about.
Here's what they said. Quote, "The US
banking system continues to maintain
strong capital and liquidity levels, but
there are three things that they're
watching. Number one is private credit
potential defaults. Number two are
commercial real estate loan defaults.
And number three, are banks sitting on
large paper losses? So, in this video, I
want to break down my analysis of what
the Federal Reserve Bank just published
in their semiannual banking system
report, and then I want to go over some
of their concerns. That way, you can
understand what the Federal Reserve Bank
is paying attention to. That way, you
can be a smarter investor. So, let's
break this all down. Now, the Federal
Reserve Bank publishes the semiannual
report where they take a look at how
healthy banks are in the United States.
And this has become more popular because
of the banking crisis that we saw after
the 2008 great financial crisis. And
what the Federal Reserve Bank is taking
a look at is number one, are banks
making money and do they have cash in
case of a downturn? And according to the
Fed, 99% of banks in the United States
today are quote well capitalized,
meaning they have money in case there
was a downturn. And then they went on to
say that bank profits are healthy, which
shows that banks in the United States
are doing good. But then if you dig
deeper into their analysis, which I'll
also link for you down in the
description, the Federal Reserve Bank
then goes on to talk about three things
that they are worried about. Number one
is private credit. Let me read you what
they said and then I'll break down what
this means. The Federal Reserve closely
monitors bank exposures to NDFIs,
that is a non-depository financial
institution, so private credit. Through
regulatory data shows limited
delinquencies in this category, several
high-profile NDFI defaults have led to
concerns about the private credit
sector. Supervisory work shows that some
banks are revisiting collateral
management practices for these
exposures. What that means is after the
2008 crash, there was this whole new
industry called private credit. Because
if you are a business and you wanted to
borrow, let's say, $200 million, well,
it might not be enough for some of these
big banks, but it was too big for some
of the smaller banks. And so, you were
kind of in this weird market. And
depending on what industry you were in,
it might have been difficult for you to
go out and raise a $200 million. That
was when these private credit funds
started, hedge funds said, "Oh, we can
take advantage of this opportunity
because these businesses need money.
Banks are not lending them that money.
How about we lend them that money at a
high interest rate, 7 8 9 10%. It is a
healthy return on our investment. the
business gets the money that they want
and we get to serve this market that was
otherwise not being served. This then
started what was called the private
credit industry. Now the interesting
thing about this, it's not a banking
industry because these hedge funds are
not banks. You and I can't go there and
deposit money. They're just these
investment institutions that are lending
money. So they act like banks, but
they're not actually banks.
So because they're not banks, they're
not regulated the way banks are. This is
where things start to get really
interesting because this industry
started to boom. Hedge funds said, "Hey,
we're making so much money on these
private credit loans. You should invest
in us." Talking to regular investors,
talking to other banks, talking to other
investment institutions, and everyone
said, "Oh, you mean that you're going to
pay out these 7 to 10% returns to us as
the investor because you're going to
charge these high interest rates and
you're getting these loans paid? Okay,
sign us up." So now wealthy people,
non-wealthy people, investment
institutions, pension funds, banks
started investing into these private
credit funds that were lending money to
businesses at these very high interest
rates. And that industry bmed for many
years.
But now things started to break. And
they started to break for two reasons.
Number one, interest rates started to go
up a lot after 2022. The Federal Reserve
Bank started raising interest rates. And
these are not fixed rate loans. So now
all of a sudden these businesses have
these much higher interest rates, higher
than they were before, and they're
having a tougher time paying off because
of the health of the economy. Reason
number two is many of these companies
were software companies and those same
software companies were being hurt by AI
because more and more people were
saying, you know what, maybe we don't
need this software because we can just
use AI to build this tool instead of
paying for that software. So these
private credit companies that were
relying on private credit loans started
to hurt and not pay back their loans.
And as they started to not pay back the
loans, the private credit funds started
to struggle. And the investors said, "We
want to pull our money out because we're
concerned about a default."
Well, as investors try to pull their
money out of these private credit funds
because you were told that you could
pull your money out whenever you want.
It's kind of like a bank.
investor tried to pull their money out
and then the private credit funds said,
"Uhoh, if we give the investors their
money back, we're going to collapse. So
then they froze your funds." They said,
"You cannot have your money back." And
this started happening with many of the
largest investment funds out there.
Blackstone froze funds, Black Rock froze
funds, Blue Owl froze funds. I mean,
many of the major Wall Street
institutions started freezing funds
because so many people wanted their
money out. And now the Federal Reserve
Bank is saying, well, this is a problem
that's continuing. It's not a problem
yet because nobody has collapsed, but we
are concerned that this could become a
problem. That's what the Federal Reserve
Bank is saying because they said
according to the Fed that this industry,
this private credit industry is the
fastest growing loan category at United
States banks because it has doubled
since 2021, 5 years.
And not just that, according to the FDI,
there are over $1 trillion in loans to
these non-bank financial institutions.
Meaning the banks, not the private
credit funds, the banks on Wall Street
have been lending money to the private
credit funds to the tune of over a
trillion dollars. And this has been a
big growing trend amongst banks because
they were getting these huge profits.
But now they might be hurting because of
what might be coming in the private
credit industry. Again, we don't know
what's going to happen. Maybe things
will fix themselves, but if they don't,
that could hurt the banking sector. And
the question is what are they going to
do if that happens? Because according to
the Federal Reserve Bank, more and more
of these banks and hedge funds are now
looking at if these private credit funds
collapse, how would we cover that loss?
That's what the Federal Reserve Bank
meant when they said that banks and
these funds are now starting to revisit
collateral management practices for
their expenses. meaning if things go
wrong, how are we going to cover that
cost? So that's concern number one that
the Federal Reserve Bank highlighted.
Concern number two that they talk about
is the commercial real estate sector.
This is something that started after the
pandemic and it has not fixed itself
yet. Here's what the Fed said exactly.
Quote, delinquencies on commercial real
estate loans and consumer loans remain
above the averages from the past decade,
indicating in part that demand for
office space has so far not returned to
prepandemic levels. And this is
primarily in the office and multif
family sectors. What that means is that
there's about $1.5 trillion in these
commercial loans that a lot of people
are underwater on. And this is what the
Federal Reserve Bank is worried about
because now as interest rates are
continuing to stay high because a lot of
people were hoping that they were going
to fall in 2026,
a lot of people are now having to pay
their loans at higher rates. Why?
Because these commercial real estate
loans are not 30-year fixed rate
mortgages, they're readjusting loans.
And during the 2020 pandemic, everybody
readjusted their loans. So 2020, 2021,
2022, everybody readjusted the loans.
And many times it's like a 5-year loan,
which means today in 2026, we have a big
wave of readjustments coming. And people
were hoping that their loans would
readjust at a lower rate, but they're
not. They were adjusting at high rates.
Which means now if you own an office
building and it's 75% occupied, 25%
vacant,
all of a sudden your cost of operating
that building have gone up. If you have
debt, not because of other costs, but
because your debt has readjusted at a
higher rate. In the past, what you would
do as an office landlord is you now pass
this cost down to your tenants by
raising their rents. The problem is
vacancies are still high in offices.
People have gone back to work in the
office, but it's not where we were pre-
pandemic. And so, if you have to pass
this cost down, the concern is what if
people leave because you're still at a
higher vacancy rate than before. And
that's the concern now that we're
starting to see this rise in commercial
real estate defaults. it's higher than
what the Federal Reserve Bank would like
to see. And the question is, if interest
rates stay higher for longer, these
default rates could go up even more. And
the question then is what is that going
to mean for banks that are holding on to
those loans? That's ultimately what the
Fed is paying attention to because there
are some of these smaller community
regional banks that are holding on to
these commercial real estate loans that
might not be able to absorb huge
commercial real estate losses. That's
what the Fed is paying attention to,
which now brings me to the Fed's third
concern, which are paper losses at
banks. And this goes back to what we saw
happen a few years ago. If you remember
Silicon Valley Bank, the reason why
Silicon Valley Bank collapsed or one of
the reasons why it's because when
interest rates went down in 2020 and
2021,
Silicon Valley Bank went out then and
started saving their money in
treasuries. A treasury is a loan to the
United States government. It's
considered the safest investment that
you can make. So, Silicon Valley Bank
bought these treasuries. Well, what
happened was as interest rates started
to go up, the value of those same
treasuries started to go down, which is
just how bonds work. A bond is a loan.
As interest rates go up, the value of
those loans go down.
So now, Silicon Valley Bank was sitting
on assets, these treasuries, which are
now underwater. They paid X dollars for
them. They're worth a fraction of that
as interest rates went up. Well, some
people got concerned and so the
businesses that were saving their money
in Silicon Valley Bank then started
pulling their money out. As they started
pulling their money out, it created a
little bit of a run on the banks while
Silicon Valley Bank did not have the
assets to support it because well, they
weren't planning on selling those
treasuries. But then as people started
pulling their money out, they needed
more cash. So now they had to realize
those losses and that's what then caused
Silicon Valley Bank to ultimately
collapse. And what the Federal Reserve
Bank is saying is that that environment
that's caused Silicon Valley Bank to
collapse hasn't changed because a lot of
banks were buying these treasuries
during the 2020 2021 days when interest
rates are very low and interest rates
are a whole lot higher than we are today
which means a lot of banks are sitting
on these paper losses on their
treasuries. According to the Fed is
about $98 billion in paper losses.
But the question is now if the banks
start to feel more pain because of what
we just talked about commercial real
estate or private credit that could
force some of the banks especially some
of the more smaller regional community
banks to try to liquidate some of their
assets and that could be a problem if
their assets they own are underwater.
That's what the Federal Reserve Bank is
paying attention to is that you need to
pay attention and count these paper
losses because they might be changing
how you can measure these paper losses.
In March 2026 this year, the Fed
proposed a new rule that would require
certain large banks to reflect these
unrealized gains and losses on their
financial statements.
If that were to happen now, all these
banks that are sitting on these cryp
losses will then have to show that we
are losing money on these things,
that's where it could cause more
problems because then more people would
say, "Oh, this bank is in very bad
financial health because it's underwater
on these losses and they'd be forced to
report it in a different way." Again, we
don't know if that's going to happen,
but this is a proposal that the Federal
Reserve Bank made in March 2026,
and that could change the health of some
of these banks if now they have to
disclose that they're in a much worse
financial situation than many people
thought that they were in. And then we
have the most interesting part of this
report, which is the end, where the
Federal Reserve Bank talked about their
concerns about private credit. They
talked about their concerns about
commercial real estate. They talked
about their concerns about these paper
losses. The Federal Reserve Bank then
says that they are now thinking about
loosening regulations and loosening some
of their supervision on their banks
despite their concerns. What they said
in October 2025 is that the Fed is now
telling their department to deprioritize
procedural shortcomings
and they should only focus on them when
there are significant threats. Meaning
if there are these concerns about
potential defaults, there are these
concerns about this potential paper
losses, they should depprioritize them
unless there is a significant threat.
Now, the interesting thing about that is
you're not going to know if it's a
significant threat until after the
threat has happened. So, the idea of
trying to deprioritize them kind of
defeats that same purpose, but you can
start to see how things are changing.
Well, then this year in February 2026,
the Fed launched a review of every
outstanding supervisory finding at every
bank and they started closing and
downgrading them. Meaning, the Fed's
supervisory department was then being
shut down to start not allocating money
and time to reviewing some of these bank
health documents. And then most
recently, the Fed changed their
definition of a quote well-managed bank.
Here's what the Fed said. Quote, the
proportion of large financial
institutions considered well-managed
increased based on the revised
definition.
Meaning, according to the Federal
Reserve Bank, a lot of banks now in the
United States are well-managed. Why?
Because we changed the definition of
well-managed. We made it easier for
banks to qualify as well-managed. One of
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description. What the Federal Reserve
Bank said is, "Banks in the United
States are healthy. They're well
capitalized and they're making high
profits. But we have three concerns.
Those concerns are number one, private
credit defaults. Number two, commercial
real estate defaults. And then banks
being underwater on their loans. Now,
despite those concerns, we the Federal
Reserve Bank are going to stop
supervising the banks as tightly as we
did before because we feel like it is a
burden for the banking industry. So, we
are going to stop doing that unless
there is a significant threat and we're
going to make it easier for banks to be
able to operate their businesses and not
necessarily oversee some of the things
that they're doing to make it easier for
banks to operate. The idea being
hopefully banks can make more money. The
concern is if something's a problem, it
might not get caught until later. If you
got value out of this video, the best
thank you as a referral. If you could
please share this video with a friend,
family member, colleague, or fellow
investor. That way we can continue to
spread this type of financial education.
Thank you. The United States is about to
borrow $2 trillion to keep our economy
running. It sounds great at first
because it's going to stimulate our
economy. But anytime the government
spends money it doesn't have, somebody
has to pay the price. I call this a
hidden tax because this is not a tax
that you're paying to the IRS. It's a
tax you're paying with more expensive