The recent collapse of the large investment bank Silicon Valley Bank is not expected to spark a broad US recession in the near term. Even prior to the volatility seen in the domestic banking sector, lending growth in the United States had already slowed, according to statements from Seth Carpenter, a top economist at Morgan Stanley, as reported by Bloomberg. Carpenter argues that the United States may still have enough resilience to avoid a recession that would require widespread layoffs and a credit crunch driven by weak household and business finances. In his view, the labor market remains relatively sturdy, with unemployment at moderate levels and a controlled pace of loan reductions, which helps reduce the immediate risk of a downturn.
“We are already seeing a deceleration as funding conditions for banks tighten and lenders curb activity, especially in the wake of the bank turmoil that followed recent events”, Carpenter noted. He emphasized that the slowdown in credit growth was evident even before the latest headlines about banking stress appeared, underscoring a trend toward tighter credit conditions without an abrupt collapse in demand or employment.
In related developments, on April 23 the Financial Times reported comments from Josh Gottheimer, a member of the Democratic Party in Congress. Gottheimer said that at least nine members of Congress sold bank shares during March’s market turbulence, which coincided with the collapse of Silicon Valley Bank and financial strains at other lenders. The reported transactions involved securities tied to Silicon Valley Bank, the financial firm Charles Schwab, and the Florida-based Seacoast Banking Corporation. These moves have raised questions about how public officials manage financial exposures during periods of sector stress and what they reveal about confidence and risk in the financial system. The broader implication is that policymakers and investors continue to monitor the intersection of political decisions and financial stability as the landscape for mid sized and regional banks evolves, with attention focused on how such actions might influence market sentiment and future lending. (Financial Times, April 23)