The sudden meltdown of high-tech lender Silicon Valley Bank is unlikely to cramp the U.S. economy, analysts say, but it could raise the odds of a recession...
The sudden meltdown of high-tech lender Silicon Valley Bank is unlikely to cramp the U.S. economy, analysts say, but it could raise the odds of a recession that many believe is inevitable later this year.
The second largest bank failure in U.S. history on Friday sparked worries about spreading financial instability damaging the economy much like what happened when Lehman Brothers collapsed in 2008. See also: Regional-bank jitters persist despite Fed backstops, with First Republic’s stock halted for trading
A slight majority of economists think a recession is likely this year due to rising rates. Higher borrowing costs slow the economy by reducing consumer spending and business investment. The demise of SVB has led to calls for the Fed to reduce or delay its next rate hike. The central bank had been expected to increase a key short-term rate by one-quarter to one-half a point at its next strategy session on March 21-22.
While some smaller banks could still fail, analysts say, they don’t see a replay of 2007-09. After all, the U.S. has experienced other failures of financial institutions without significant economic fallout, notably Long-Term Capital Management in 1998 and Continental Illinois in 1984.
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