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The bank crisis threatens to spark a credit crunch as Main Street banks pull back

Top of the morning, team. Phil Rosen here. I have a quick favor to ask — we're looking to highlight the best up-and-comers in the world of sell-side equity research.

Is there anyone you'd like to nominate for Insider's rising stars list for 2023? You can submit names here.

Here's our roster from last year of the most talented analysts under the age of 35.

Now let's get to the news.


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wall street
wall street

Spencer Platt/Getty Images

1. A possible consequence of the banking crisis is that households and businesses may soon find it harder to get a loan from their bank.

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Around $1 trillion in deposits have been pulled from smaller and mid-sized banks since the Fed began hiking rates last year, with half that fleeing banks since SVB collapsed.

Those shrinking money pools could lead to a higher bar to clear for borrowers to access credit.

"The uncertainty generated by deposit movements could cause banks to become more cautious on lending," JPMorgan strategists wrote in a note.

"This risk is heightened by the fact that mid- and small-size banks play a disproportionately large role in US bank lending."

Alexander Yokum, an analyst at CFRA Research, told my colleague Carla Mozée that he expects firms to become stricter with loans.

After SVB's collapse, he added, regional banks could see a sizable drop in deposits, and tightening lending standards will impact all kinds of borrowing.

This likely could impact the trajectory of the economy, as regional and community banks are a massive source of credit to Main Street borrowers.

Banks with under $250 billion in assets account for 45% of all consumer lending, according to Goldman Sachs, while 43% of the $5 trillion worth of commercial loans sit with mid-sized banks.

Housing, too, is in a state of flux as mortgage rates hover near multi-decade highs and home prices stay elevated.

Though there's been some debate as to how the SVB collapse will impact prospective buyers, the market is undeniably slowing.

At present, home prices now are in their longest slump in over a decade, according to Case-Shiller data released Tuesday.

"Just how much prices will rise from winter lows will depend on whether mortgage rates stabilize and creep downward or stay high and volatile," Zillow senior economist Jeff Tucker wrote in a note yesterday.

But strangely, the housing market appears to be both crashing and rebounding at the same time.

It just depends where you live.

Data from Black Knight illustrate that home prices on the West Coast are plunging, while those on the East Coast are ticking higher.

For example, while annual home prices fell 10.3% in San Francisco for the month of January, they surged 12% in Miami in the same stretch.

A New York Fed survey found that Americans expect home prices to grow 2.6% in the next 12 months — down from 7% a year ago.

That's the lowest reading since the data began in 2014.

What other implications on lending do you anticipate from the recent bank turmoil? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know. 

In other news:

SVB
SVB

Silicon Valley Bank was shut down by regulators on Friday.Getty Images

2. US stock futures rise early Wednesday as worries about a banking crisis continue to ease. Meanwhile, a second hearing on the collapse of SVB will be held today before the House Financial Services Committee. Here are the latest market moves.

3. On the docket: Spotify, Next PLC, and more, all reporting.

4. Morgan Stanley recommended this batch of stocks to prepare for an unexpected earnings drop. Investors should brace for a downturn and more market volatility, chief investment officer Mike Wilson explained. These are the 32 names on his list.

5. Fallen crypto king Sam Bankman-Fried is facing new charges. Prosecutors said he spent $40 million or more in crypto to "influence" Chinese officials, according to an indictment unsealed Tuesday. On top of that, new bail terms dictate that he uses a phone without internet, and a laptop that only has access to approved websites.

6. Fundstrat's Tom Lee said the banking turmoil may not blow up into a financial crisis. The famed Wall Street bull doesn't expect broader contagion— and he actually thinks it could pave the way for a new bull market in stocks.

7. Silicon Valley Bank was a "textbook case of mismanagement," the Federal Reserve's Michael Barr said. In a statement at his Tuesday Congressional hearing, the central banker warned that SVB's failure could lead to a tightening of banking rules to prevent similar incidents. Get the full details.

8. Airbnb hosts who are booking up spaces shared the top strategies for success on the platform. One host said they're willing to spend more money to deliver a "wow" factor in their experience. Here's how the top owners are thriving even as competition heats up and the era of "Airbnbust" continues. 

9. The world's largest wealth manager is warning investors to avoid stocks for the rest of the year. UBS downgraded equities, and said buyers shouldn't let a big opportunity in the bond market go to waste before rates come back down. Read the firm's full advice across asset classes.

Brent crude price on March 29, 2023
Brent crude price on March 29, 2023

Markets Insider

10. A Russian official said the country has successfully rerouted all the oil it would have sold to the West to "friendly" nations. Nikolai Shulginov, Russia's energy minister, implied that Moscow has offset the impact of sanctions aimed at curtailing export revenue. He maintained that Russia will continue to focus on sending commodities to allies.


Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.

Read the original article on Business Insider