The biggest 2-week decline in bank lending in history
Banks start to react to the liquidity crisis and lending has declined in a clearly recessionary way over the past weeks. We have taken a look at which sectors that will suffer.
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Happy Easter Sunday and welcome to our flagship editorial!
We covered the banking crisis extensively at Steno Research and ultimately concluded that this was THE trigger event that every bearish economist had been waiting for. The recession is likely to arrive, but we are probably slow-walking into it rather than crashing into a brick-wall at highway speed.
My friend Jim Bianco has hilariously labelled the current situation a bank walk as a picture of a slower moving bank run and it is a very telling terminology. We are slowly but surely slow-walking into an outright credit crunch in H2-2023.
Our empirically tested recession probability monitor is also starting to remove the last doubts. Based on incoming orders and permits data from this week, the recession probability is now >75% for Q3-2023, which is already turning into a consensus view by the way.
Chart 1: Recession to arrive in Q3 with a relatively high certainty now
The liquidity/deposit crisis may be moving in slow-motion relative to a few weeks ago as the Fed has effectively backstopped or rather sugarcoated the liquidity stress with the new “garbage cans at par” lending program.
The issue is that extremely conservative decision making in banks credit departments follows emergency lending and a continued slow bleed of deposits. We have had the biggest nominal drop in the history of bank credit over a two-week period in the weeks concluding the month of March.
Even if this may be partially driven by pay-backs of emergency facilities, it cannot be construed as good news.
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Find the full story here → https://stenoresearch.com/steno-signals-43-slow-walking-into-a-recessionary-credit-crunch/
Chart 2: Bye bye bank lending?