Why SVB’s collapse could still have 'domino effects' for the US economy: report

28 March 2023

When Silicon Valley Bank (SVB) and Signature Bank collapsed and Credit Suisse's stock plummeted in value, those events brought back painful memories of the September 2008 collapse and the Great Recession. In Switzerland, officials argued that banking problems in the United States were leading to banking problems in Europe.

Journalist Courtenay Brown, in an article published by Axios in late March, stresses that weeks after SVB's collapse, fears of a widespread banking crisis linger.

"The U.S. banking system appears to be stabilized for now, following extraordinary government actions to head off an all-out disaster after Silicon Valley Bank's failure," Brown reports. "Yes, but: Wall Street economists and the Fed increasingly expect fallout from that collapse to linger in the months ahead, as regional and community banks ease up on lending activity."

Brown notes that even before SVB's collapse, banks were "already tightening up on lending."

The reporter explains, "The economy runs on credit and loans. Should that activity slow or grind to a halt, there would be domino effects for hiring, spending and more — particularly if banks that are the most active lenders to small and midsize businesses are forced to retrench. "

Kathy Bostjancic, chief economist at Nationwide Mutual, points out that banks could cut back more on lending.

Bostjancic told Axios, "Banks might basically say, 'We can't make as many loans' because they fear they won't be liquid enough to pay out the deposits."

According to Brown, "Banks might also worry that after the banking crisis, regulators and supervisors may scrutinize them even more closely, making them more wary of expanding their balance sheets…. The bottom line: No one knows, however, how big of a credit crunch is ahead and to what extent it will crimp economic activity."

Read Axios’ full report at this link.

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