Source: Wind

Hong Kong's Wande News Agency reports that Bank of America has recovered from the crisis, but Wall Street institutions and Federal Reserve officials have different views on the subsequent impact of the crisis.

Specifically, J.P. Morgan CEO Jamie Dimon (Jamie Dimon) said that as banks tightened credit, the banking crisis increased the possibility that the US would fall into recession. “We're seeing people reduce their loans a little bit,” Dimon notes. Turmoil in the industry doesn't necessarily lead to a recession, but “it does have the effect of causing a recession,” he said.

Dimon's statement was based on his assessment in his annual letter to shareholders this week, in which he acknowledged that the collapse of Silicon Valley Bank and the emergency sale of Credit Suisse Group AG (Credit Suisse Group AG) to UBS Group AG (UBS Group AG) “greatly changed market expectations.”

“This has caused a great deal of unease in the market, and will obviously lead to some tightening of financial conditions as banks and other lenders become more conservative,” he said in his letter. He wrote a few days ago that it's unclear whether consumer spending will slow. In his annual letter, he also said that regulators encourage banks to buy low-yield government bonds because they are considered highly liquid.

After Silicon Valley Bank and several other banks were overrun with deposits, regional banks in the US fell into disarray. Higher interest rates reduced the value of bonds they bought when interest rates were low, and a sudden surge in customer withdrawals forced some of them to sell these assets at a loss.

According to a monthly survey previously released by the Federal Reserve Bank of Dallas, loan demand declined for the fifth consecutive quarter as bankers reported worsening business activity. The survey found that the main reason for the decline in loan amounts was a sharp contraction in consumer loans. One interviewee pointed out, “The macro-impact of the bankruptcy of Silicon Valley Bank, Signature Bank, and Credit Suisse, together with the downgrading of several regional banks, has led to a crisis of confidence in our banking system.”

Torsten Slok (Torsten Slok), chief economist at Apollo Global Management (Apollo Global Management), said that people are already feeling the pressure. He published a report entitled “The Credit Crisis Has Begun” on Thursday, citing a survey of 71 banks in the Dallas Federal Reserve Bank District after the Bank of Silicon Valley went out of business on March 10. He said, “It shows a dramatic reversal in the number of loans.”

Slocke warned that the collapse of Silicon Valley Bank could have a more negative impact on the economy than some financial crises in the past, including the 1994 bankruptcy of Orange County, California, the collapse of a hedge fund long-term capital management company in 1998, and the UK's Phnom Penh bond issue last year. He said this is because the behavior of regional banks will change after Silicon Valley banks go out of business. “Most importantly, capital costs have increased and underwriting standards have been tightened.”

However, the credit crunch is not a foregone conclusion. St. Louis Federal Reserve Bank (St. Louis Federal Reserve Bank) Governor James Bullard (James Bullard) on Thursday was skeptical that the banking crisis would plunge the economy into recession. “Only about 20% of loans are made through the banking system, and only a small percentage of banks are small or regional banks,” Brad said. “I just don't think it's big enough on its own to plunge the US economy into recession.”

Brad doesn't think the impact of the recent Bank of America collapse may be enough to tighten the credit environment and plunge the economy into recession. His theory is based on an estimate that 20% of bank deposits are leaving the financial system in search of profit. However, Brad said that it is still unclear whether lending will fall sharply as a result.

In his view, as long as banks maintain sufficient liquidity and capital to issue loans, a credit crunch will not occur. “You're just talking about part of the whole brokerage deal that's going on,” Brad said. “It's not big enough by itself to plunge the US economy into recession.”

Editor/Somer