The recent news about bank collapses and emergency rescues may seem distant and alarming to many people. However, it’s important to understand the potential consequences that these events could have on the U.S. economy, small businesses, and regular people.
Will this trigger a recession?
One question that many people may have is whether bank collapses could trigger a recession. The answer is that it depends on many factors, such as whether banks become more cautious about lending, whether employers get leery about hiring new workers, and whether shoppers cool their travel plans or delay big purchases.
Will getting a loan be more expensive?
Another concern is whether getting a loan may become even more expensive. With interest rates already on the rise, banks may decide to reduce how many loans they issue due to general belt-tightening in an uncertain economy or if they face tougher regulations in the fallout of recent bank failures.
Regular bank customers may also be impacted by higher fees as a result of federal rescues. The FDIC has broken with normal policy to guarantee that all customers can get their money back from collapsed banks, but this insurance money came from a fund pooled through quarterly fees from FDIC-insured banks. If the fund runs out, the FDIC may assess higher fees on banks, who could then pass on the new costs to all their customers.
Could this make big banks even more powerful?
The perception that big-enough banks will get bailed out in an emergency, whether their deposits are insured or not, may also lead to unintended consequences. Bankers who manage uninsured accounts above the $250,000 cap may start taking greater risks, or the people who own those accounts may scrutinize their bankers’ decisions less. This could also result in a potential exodus from smaller, regional banks to bigger ones, leaving fewer lenders commanding more clout.
The failures of banks like Silicon Valley Bank may lead to a slowdown in lending to smaller, untested business ventures, or a slowdown in Silicon Valley’s startup spending overall. Silicon Valley Bank was a key player in the startup ecosystem, facilitating meetings of entrepreneurs and venture-capital investors in addition to holding their accounts and loans. Its collapse may remove a capital source for many companies and mean that some companies may end up failing.
In conclusion, while the news about bank collapses and emergency rescues may seem distant and alarming, it’s important to understand the potential consequences that these events could have on the U.S. economy, small businesses, and regular people. It’s crucial to stay informed and be prepared for any potential impact on personal finances or business operations.