The Banking Industry in Turmoil: How Will It Affect Credit Availability?

The past week has seen a turbulent time for the banking industry, with the collapse of Silicon Valley Bank and the near-collapse of First Republic Bank. US regulators intervened to take control of Silicon Valley Bank, while a private sector rescue was arranged for First Republic Bank. This, along with a backstop from the Swiss National Bank, has helped to restore relative calm to the markets. However, benchmark indexes of shares in US and European banks have still lost 20% and 13% respectively since the close of trading last Wednesday.[0] With nearly $200 billion in direct central bank support, it is clear that banks need a lot of money, albeit the system is working as intended.[0]

HSBC has reportedly committed more than $2 billion to SVB’s UK business and the US government’s Federal Deposit Insurance Corporation (FDIC) is on the hook for $140 billion.[0] The question remains of whether the events of the past week will have an effect on the availability and cost of credit. US Treasury Secretary Janet Yellen has suggested that banks will become more reluctant to lend, making credit more expensive and less available.[0] Christine Lagarde, president of the European Central Bank, has also expressed concern that persistently elevated market tensions could further constrict credit conditions.[0]

The Chinese central bank has taken action to keep cash flowing through the economy by cutting the amount of money lenders are required to hold in reserve, while investors in interest-rate futures markets are now seeing a nearly 50% chance that the Fed won't increase rates at their March 21-22 meeting.[0] This leaves the federal-funds rate between 4.5% and 4.75%.[1] All in all, it is clear that this week has seen a dramatic shift in the banking industry, and its effects are sure to be felt for some time.

0. “Global banking suffers worst week since 2008. It ain't over yet”, 17 Mar. 2023,

1. “Bank Turmoil Casts Doubt on Fed Raising Rates Next Week; Data Hints at Cooling U.S. Economy”, 16 Mar. 2023,–43260478/

Click Here to Leave a Comment Below 0 comments