By Saeed Azhar and Davide Barbuscia
NEW YORK, March 27 (Reuters) - After the collapse of two
U.S. banks and record outflows from smaller lenders, the banking
industry is shifting its concern from an immediate crisis to a
medium-term worry: economic growth.
Deposits held by small U.S. banks dropped by a record $119
billion to $5.46 trillion after the collapse of Silicon Valley
Bank on March 10, according to data released Friday by the
Federal Reserve.
"We expect stress in the banking system to weigh on credit
growth, which will in turn reduce real GDP growth," Goldman
Sachs analysts led by chief economist Jan Hatzius wrote in a
note, referring to gross domestic product.
Financial markets remain unsettled by the lack of clarity on
the government willingness to guarantee customer deposits,
Hatzius wrote. Investors are also concerned about the shaken
confidence of depositors and uncertainty looming over smaller
banks, he added.
As customers move money from their checking accounts to park
it into money market accounts, consumer spending will probably
decrease, Torsten Slok, chief economist at Apollo Global
Management, wrote in a note.
Tighter credit conditions will exert meaningful pressure on
economic activity, but the effect will not be catastrophic
unless the situation escalates into "full-blown crisis of
confidence," Barclays analysts wrote in a note last week.
Recent stress in the banking sector and the possibility of a
follow-on credit crunch bring the United States closer to
recession, Minneapolis Fed President Neel Kashkari told CBS'
"Face the Nation" on Sunday.
Government policies, including insuring deposits for
collapsed lenders Silicon Valley Bank and Signature Bank, and
the provision of more liquidity to banks, have limited stress in
the financial system, but not eliminated it, Goldman Sachs
analysts wrote in a report.
U.S. regulators announced on Monday they would backstop a
deal for regional lender First Citizens BancShares to
acquire failed Silicon Valley Bank, triggering an estimated $20
billion hit to a government-run insurance fund.
The deal comes after the Federal Deposit Insurance
Corporation (FDIC) took over Silicon Valley Bank on March 10
after depositors rushed to pull out their money in a bank run
that also brought down Signature Bank and wiped out
more than half the market value of several other U.S. regional
lenders.
"Banking system stress remains high, but there are some
signs of stabilization," Bank of America Corp analysts
wrote in a note. "Growth in bank emergency funding appears to be
moderating."
The Fed data should provide some assurance that funding
strains will be more short-lived than feared, UBS analysts said
in a note.
(Reporting by Saeed Azhar and Davide Barbuscia; Editing by
Lananh Nguyen and Angus MacSwan)
Messaging: saeed.azhar.reuters.com@reuters.net))
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