People walk by the New York Stock Exchange (NYSE) on February 14, 2023 in New York City.
Spencer Platt | Getty Images
A banking crisis that erupted less than two months ago now appears to be less a major broadside to the U.S. economy than a slow bleed that will seep its way through and act as a potential catalyst for a much-anticipated recession later this year.
As banks report the impact that a run on deposits has had on their operations, the picture is a mixed one: Larger institutions like JPMorgan Chase and Bank of America sustained far less of a hit, while smaller counterparts such as First Republic face a much tougher slog and a fight for survival.
That means the money pipeline to Wall Street remains mostly alive and well while the situation on Main Street is much more in flux.
“The small banks are going to be lending less. That’s a credit hit on Middle America, on Main Street,” said Steven Blitz, chief U.S. economist at TS Lombard. “That’s negative for growth.”
How negative will come to light both in the approaching days and months months as data flows through.
First Republic, a regional lender seen as a bellwether for how hard the deposit crunch will hit the sector, posted earnings that beat expectations but reflected a struggling company otherwise.
Bank earnings largely have been decent for the first quarter, but the sector’s future is uncertain. Stocks have been under pressure, with the SPDR S&P Bank ETF (KBE) off more than 3% in Tuesday afternoon trading.
“Rather than bringing concerning new information, this week’s earnings are confirming that the banking stress stabilized by the end of March and was contained at a limit set of banks,” Citigroup global economist Robert Sockin said in a client note. “That’s about the best macro outcome that could have been hoped for when stresses emerged last month.”
Watching growth ahead
In the immediate future, the reading on first-quarter economic growth is expected to be largely positive despite the banking problems.
When the…
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