SVB’s collapse forewarns of a banking crisis

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The collapse of Silicon Valley Bank (SVB) marked the zenith of lending growth, signifying an ominous turning point in the financial landscape. Both small and large banks witnessed lending growth peak at approximately 15% and 10% respectively in early 2023. Since then, lending growth has steadily declined, poised to plunge into negative territory for large banks. This downturn follows the Federal Reserve’s unprecedented interest rate hike campaign, halting borrowing in its tracks.

With higher interest rates becoming the new norm, negative lending growth looms on the horizon as we approach late 2024. This contraction mirrors the dark days of the Global Financial Crisis (GFC), with bank credit shrinking year-over-year for the first time since the crisis. Tighter credit standards are expected, posing challenges for businesses seeking financing.

The Federal Reserve’s mishandling since the regional banks crisis has exposed its susceptibility to political influence. As SVB’s collapse reverberates through the financial system, it serves as a stark reminder of the perils of political interference in monetary policy, echoing warnings dating back to the founding fathers.

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