US banks’ concerns shift from crisis to growth crisis According to Reuters

© Reuters. A sign marks Wall Street outside the New York Stock Exchange (NYSE) in New York City, where markets wobbled after Russia continued to attack Ukraine, in New York, U.S., February 24 2022. REUTERS/Caitlin Ochs

By Saeed Azhar and Davide Barbuscia

NEW YORK (Reuters) – Following the collapse of two US banks and record outflows from smaller lenders, the banking industry is shifting concern from the immediate crisis to the medium-term one. : economic growth.

Deposits held by small U.S. banks fell by a record $119 billion to $5.46 trillion following the collapse of Silicon Valley Bank on March 10, according to data compiled by the U.S. Bureau of Statistics. Federal Reserve announced Friday.

“We expect stress in the banking system to weigh on credit growth, which in turn will dampen real GDP growth,” said Goldman Sachs (NYSE:NYSE) analysts led by chief economist. Jan Hatzius wrote in a note, referring to gross domestic product.

Hatzius writes that financial markets remain volatile due to a lack of clarity on the government’s willingness to guarantee customer deposits. Investors are also concerned about the shaking confidence of depositors and uncertainty lurking around smaller banks, he added.

As customers move money from their checking accounts to deposit into money market accounts, consumer spending is likely to drop, said Torsten Slok, chief economist at Apollo Global Management (NYSE:NYSE), write in a note.

Tighter credit conditions will put significant pressure on economic activity, but the impact will not be so dire unless the situation escalates into a “full-blown crisis of confidence”. Barclays (LON:) analysts wrote in a note last week.

Recent tensions in the banking sector and the possibility of a further credit crunch will move the US closer to a recession, Minneapolis Fed President Neel Kashkari told “Face the Nation” program. of CBS on Sunday.

Government policies, including deposit insurance for failed lenders Silicon Valley Bank and signature bank (NASDAQ:), and providing more liquidity to banks, has limited stress in the financial system, but has not eliminated it, Goldman Sachs analysts wrote in a report.

U.S. regulators announced on Monday that they would back a deal for regional lender First Citizens BancShares to acquire the failed Silicon Valley Bank, causing an estimated $20 billion in losses. dollars for a government-run insurance fund.

The deal comes after the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank on March 10 after depositors rushed to withdraw their funds in a banking race. The bank also caused Signature Bank to collapse and wiped out more than half the market value of several other banks. US regional lenders.

Bank of America Corp (NYSE:NYSE) analysts wrote in a note: “Banking system stress remains high, but there are some signs of stabilization.” “Bank emergency funding growth appears to be moderate.”

UBS analysts said in a note that the Fed data should provide some reassurance that funding strains will be short-lived rather than feared.

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