During the 2008 crisis, there were 3 failed banks in 2007, followed by 25 failed banks in 2008. This year, we have 3 failed banks. Is the contagion effect still a concern?
Fed has hinted that its benchmark interest rates will stay higher for longer despite inflation rates are slowly falling as price pressures persist.
Banks also look set to continue tightening lending standards in the second half of the year. That will make it more difficult and costly for small and midsize businesses (and US households) to secure funding.
Corporate bankruptcies are on the rise and so are consumer debt delinquencies. Delinquencies rose across all “days past due” categories on a year-over-year basis, jumping from 0.16% of loans in May 2022 to 0.25% in May 2023.
So are we entering a credit crunch?
The US consumer has been resilient, but obviously, persistent inflation is definitely eroding their purchasing power. Less wealthy consumers are definitely feeling a lot more pressure, they’re using more credit card debt. Households are bleeding through the cash pile that they had accumulated during the pandemic. Hard decisions are being made, and that’s going to feed back into corporate growth prospects.
The 3 failed banks this year were caused by banks having too much money and locking themselves into a 10 year yield below a 2% return. The progression into a credit crunch is a bigger problem for the banks.
In a recent article, we connected the dots to help explain the factors contributing to the current high-interest rate environment and bank runs. We also provided insights into the risks and future opportunities that lie ahead using the 'Quantamental' approach.
$SVB Financial Group(SIVBQ)$ $First Republic Bank(FRC)$ $Signature Bank(SBNY)$
The credit crunch is getting worse and bankruptcies are on the rise | CNN Business
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