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Fear is seeping into the economic outlook, and for good reason.
The banking turmoil will force lenders to freeze loans, and it remains to be seen whether a more serious financial crisis is in the cards. The commercial real estate market – the driver of construction and development – appears to be under pressure. And it’s all coming down as the Federal Reserve continues its assault on inflation with rate hikes designed to slow the economy.
The Fed has indicated it may taper off after the first quarter.
But some economists see a path in which a surprisingly resilient post-Covid economy can once again overcome barriers.
an explicit wildcard There’s the labor market, which added 815,000 jobs in January and February.
“What it comes down to in the economy at the end of the day is jobs, jobs, jobs,” said Joe Brusuelles, chief economist at RSM US. “If unemployment does not rise and wages continue to rise at the recent pace, there is a small chance that the economy can avoid recession.”
Another factor: The US economy is less dependent on bank loans than others.According to an analysis by Robin Brooks, chief economist at the Institute of International Finance, Exposed by former MM host Kate Davidson, This can also reduce the chances of recession.
There’s Another Scenario That The Market May Not Appreciate: Banking turmoil can, intuitively, trigger actions that stimulate the economy.
Bob Elliott, CEO of Unlimited Fundswho previously led research at hedge fund giant Bridgewater Associates, said mortgage rates are falling, easy monetary policy is being priced in and property prices are modestly flat.
“If you add it up, you look at it and say, it’s not clear that this is negative for the economy,” he said. The factors that matter more than small bank lending are, according to ElliottWhich he said had already slowed down.
Elliot describes the economy as a tanker ship that takes a lot to slow down. He suspects that “a few banks that no one had ever heard of before the last two weeks” are enough to derail the macroeconomic momentum.
“In the same way that Fed tightening has increased economic growth, some of these credit problems have been an incremental drag on growth, but you have to compare it to the underlying momentum in the economy, and it still looks great.”
“So will this be enough to bring down the economy? When you pencil through all the numbers it seems like a slim possibility.”
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A message from the American Bankers Association:
The banking system works best when it works All Americans. Thanks to initiatives like SimpleBank On-Certified accounts, the number of unbanked individuals in America is now at its lowest level. Today more than 41,000 bank branches offer these low-cost, easy-to-access accounts. Learn more about Bank On.
First in MM: Tim Scott leads GOP Fed investigation on SVB – Senate banking Republicans late Thursday asked Fed President Jerome Powell and San Francisco Fed President Mary Daley for comprehensive documents related to the SVB collapse. Sen. Scott, the panel’s ranking member, made the request in a letter signed by all Republicans on the committee.
among themselves:
- All SVB Exam Report from Jan 2019 onwards.
- Records relating to SVB’s uninsured deposits, interest rate risk, concentration risk and accelerated growth.
- Calendar entries going back to July 2022 for all Fed Board members, the SF Fed President and Vice President, and all SVB examiners.
- Communications from March 9 between the Fed, the New York Times, and other media outlets concerning SVB.
“The American people deserve transparency and accountability from their government officials, and they deserve to understand exactly what Federal Reserve officials knew about the clear risks associated with SVB, when they knew it, and what they knew about the bank. Why have you failed to act to stop the failure from happening,” the Republican said.
Scott and Senate Banking Chairman Sherrod Brown earlier on Thursday called the former CEOs of SVB and Signature Bank to testify before the committee.
Yellen: Government ready to help banks of any size Treasury Secretary Janet Yellen told House lawmakers on Thursday that the tools the administration and regulators used earlier this month to stabilize the banking system are that “we will again may be used if we see that its failure would create the risk of a contagion.”
Walt Bettinger, CEO of Charles Schwab, told the WSJ that even if the brokerage loses most of its deposits next year, it could still continue to operate.
SVB buyers uncomfortable with loans , The FT reports that private debt investors investing in SVB’s $74 billion debt portfolio are not finding large chunks of it attractive. Blackstone, Apollo, Carlyle, Sixth Street and HPS Investment Partners are among the investment groups considering the proposals.
Reuters reports that regional lender Citizens Financial is working on a bid for SVB’s private banking business.
ESG rollback is over , House Republicans on Thursday tried and failed to override the veto that blocked Biden’s attempt to repeal the DOL’s Environmental and Social Investments rule. He was unable to muster the necessary two-thirds support.
A message from the American Bankers Association:
Block shares fall on fraud allegations , Shares of Jack Dorsey’s digital payments company plunged 15 percent after short seller Hindenburg Research alleged it inflated its user base and facilitated fraudulent transactions, according to CNBC.
Credit Suisse, UBS targeted in Russia sanctions probe , Bloomberg reports that the DOJ is looking into Swiss banks in an investigation into whether financial professionals helped Russian oligarchs evade sanctions.
A message from the American Bankers Association:
The banking system works best when it works All Americans. Banks across America are joining the Bank On movement to promote financial inclusion and increase access to banking services. Now available at more than 41,000 bank branches in all 50 states, Bank On-Certified accounts are low-cost and provide unbanked individuals with a viable path toward long-term financial security. Learn about the effect of Bank On here.
JPMorgan, Citi, BofA warn employees not to poach clients from troubled banks – Reuters: “JPMorgan … told all employees in a March 13 memo that they should ‘never give the appearance of taking advantage of a situation of stress or uncertainty,’ an extract seen by Reuters.”
Banks tap Fed loans amid stress , NYT: “The two major programs combined loaned $163.9 billion this week – roughly in line with $164.8 billion a week earlier, according to Fed data released Wednesday. That’s a lot more than normal.”
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