The authors examine how banking stress could spread into the broader economy by restricting credit and encouraging more saving. They estimate tightening could push real growth to negative 2.4% year over year, with smaller banks, commercial real estate, and specialized borrowers particularly exposed.
Sizing the Impact of the Banking Crisis on the Broader Economy
Bridgewater
Gardner Davis, Greg Jensen
Article
1 Pages
Key Takeaways
Credit Supply Risk: Small and stressed banks provided roughly 2.7% of GDP in annualized lending over the prior three years, representing more than half of banking sector lending.
Commercial Real Estate: Fed stress tests modeled a 40% commercial real estate price decline over two years, while banks with $100 to $250 billion in assets had avoided annual tests since 2018.
Rate Expectations Shift: Nearly 100 basis points of expected tightening disappeared from the short rate curve after March 1 as banking stress changed expectations for monetary policy.
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