Due to the banking crisis, lending is probably going to become even tighter, adding another challenge to an otherwise strong economy.
Why it’s important Access to credit is necessary for investment, a key factor in economies that are based on consumption. The economy suffers when a financial panic restricts the flow of credit.
Driving the news: The share prices of small banks had another shaky day. Investors are concerned that the crisis, which started in March with the failure of Silicon Valley Bank, hasn’t yet been put an end to by policymakers.
The S&P 500 index of larger regional bank shares fell nearly 7%, led by a nearly 11% tumble in Utah’s Zions Bancorporation.
The S&P’s smaller regional bank benchmark dove by over 6%, paced by a gnarly 23% swoon in Los Angeles’ PacWest Bancorp.
State of play: The small regional firms at the heart of the crisis are almost certainly reducing lending and building stockpiles of cash and super-liquid investments.
That means a small but clear downturn in business lending that began in March is likely to worsen.
The numbers: The Federal Reserve’s weekly numbers on overall business loans outstanding have dropped 2% since their March peak. Business loans from smaller banks are down a sharper 4.2%.
