Bank failures and crises leads to a tightening of credit. This is the secondary effect that is often overlooked. The focus is on the immediate failure and the depositors, yet the economy will be driven by the credit channel as well. The credit situation was difficult before the bank closures.
The bank credit standards are tightening across the board and closing in on the highs from the pandemic. There is little to suggest that this trend will change.
Bank credit growth is slowing. Less loans are being made although a 5% growth is respectable. The trend is falling. M2 money supply growth is now negative. Of course, the supply is still high given past growth, and we will see an increase with the Fed injection of money, but the trend is lower.
The short-term credit has improved with the bank bail-out, but the combination of higher rates, tightening standards, and slowing loan growth does not paint a pretty picture.
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