Banking Sector Turmoil Could Lead to Economic Recession

An economic downturn is looming as global banking crisis unfolds. Goldman Sachs on Thursday increased its odds of a recession by 10 percentage points, to 35%, and other economists are even less optimistic that the U.S. will be able to avoid an economic downturn, with those surveyed by Bloomberg putting the odds of a recession at 60%.[0] Market participants fear the U.S. may be nearing its Lehman moment yet again as panic spreads oversees to Credit Suisse, which saw its stock plunge 30% in a day after a top shareholder said it could not provide further financial support due to a regulatory limit.[1]

JPMorgan Chase & Co. estimated the US economy faces a potential hit to gross domestic product of a half to a full percentage point from diminished credit growth in the aftermath of the latest banking-sector troubles.[2] This could be a result of slower loan growth by mid-size banks, as Goldman Sachs analysts wrote that tighter financial conditions could shave half a percentage point off US growth this year.[3]

The average person’s finances were better a year or two ago than they are now, as Ted Rossman, a senior industry analyst at, noted that credit card balances were 17% lower than they were prior to the pandemic, but are now up 28%.[4] The amount of debt Americans are carrying has also soared, with credit card balances increasing by $61 billion to a record high of $986 billion in the last quarter of 2022, and auto loan balances rising by $94 billion.[4] The percentage of credit card holders carrying debt from month to month has increased to 46%, up from 39% a year ago, and auto loan delinquencies have been steadily rising from their pandemic lows.[4]

Meanwhile, the European Central Bank is seen scaling back rate hikes at its meeting Thursday.[5] Further complicating matters, First Republic Bank, which was downgraded by both S&P Global Ratings and Fitch Ratings on March 15, is exploring strategic options — including a sale, according to Bloomberg.[0]

It is clear that the banking sector turmoil can tighten the credit squeeze already set in motion by interest-rate increases, potentially leading to a system-threatening bank collapse.[5] A giant bank failure, leading to a loss of credit, is the most catastrophic result that would almost certainly guarantee a recession.[2]

0. “Odds of Recession Increase 10% After Bank Failures” Yahoo Entertainment, 16 Mar. 2023,

1. “The market is on the verge of Lehman-style event amid banking turmoil” Markets Insider, 17 Mar. 2023,

2. “Analysis | Behind the Banking Crisis, an Era of Easy Money's End: QuickTake” The Washington Post, 19 Mar. 2023,

3. “A recession could come sooner on cooling bank lending” CNBC, 15 Mar. 2023,

4. “Shrinking savings and rising debt leave consumers on shaky financial footing” AOL, 18 Mar. 2023,

5. “Recession Fears Soar as Credit Suisse Woes Threaten Loan Crunch” Yahoo News, 16 Mar. 2023,

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