What the recent struggle of midsize banks tells us about the future of the economy The struggles of midsize banks in recent days have raised new questions about the future of the U.S. economy.

What the recent struggle of midsize banks tells us about the future of the economy

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We're going to begin this hour with banking, what this week's pressure on that sector of the economy might mean. Darian Woods - he's with NPR's podcast The Indicator From Planet Money - joins us now. Darian, thanks for being with us.


SIMON: The government is at Silicon Valley Bank and at Signature Bank, even above the usual $250,000 threshold. But bank stocks are still failing, aren't they?

WOODS: Well, the bank stocks are flailing. All the major banks' share prices are down this week, but regional banks in particular are suffering. There's this measure of regional banks' share price, and that is down nearly a third since the start of the month. And it was still sliding this week. There's been variation within this, though. So on one extreme, you've got a big worry for markets this week, which was First Republic Bank. That bank has lost about 80% of its value since the turmoil began. But if you look at the bigger banks, they've taken a hit but less so.

SIMON: And why aren't investors confident these other banks are going to make it through this period?

WOODS: Yeah. So there are four main things happening. There's scrutiny, there's fear, there's stronger regulation potentially, and there's a worry about a slowing economy.

SIMON: Well, let's begin with scrutiny.

WOODS: OK, so investors are looking at banks' balance sheets more closely now. Silicon Valley Bank's books were not in amazing shape when its customers were fleeing last week. So investors will be looking at similar patterns in other banks with a sharper eye. And if we move on to the second item, that's fear, we have Silicon Valley Bank's assets were losing money, but it may well have survived if it hadn't had its bank run last week. And so with this on investors' minds, no one wants to get caught in another stampede.

SIMON: And what about the possibility - we might even say certainty at this point - of regulation?

WOODS: Yeah, that's right. So it's the third concern for investors. Regulators didn't catch just how shaky these banks were and also the implications of a collapse. And so even if there's not an immediate law change, regulators are going to be digging into banks more, and that could mean lower profits in the future. That brings me to the fourth concern is slowing economy. With high interest rates and now these banking jitters, Main Street businesses might stop expanding. They might stop their hiring. And none of that is good for bank profitability. And investors have woken up to that eventuality, potentially, which is getting reflected in stock prices.

SIMON: People have been talking about a possible recession for nearly a year. Is this another reason why, in fact, the economy might be headed there?

WOODS: Yeah, so the short answer is we don't know if we're going to hit a recession. This is one definite headwind. The bond market is now predicting that the Fed will cut interest rates from the middle of this year or even sooner. If that happens, it could be because of a recession. And if this banking trouble turns for the worst, that could mean a recession. There's also the chance that the banking troubles stay contained. There is a chance that widespread economic fallout is avoided. We haven't uncovered a slew of toxic assets plaguing the economy like the 2008 financial crisis. It's also worth remembering the strengths that we have in the economy right now, in particular, a strong labor market, two job openings for every unemployed person.

SIMON: Darian Woods co-hosts NPR's podcast The Indicator. Thanks so much for being with us.

WOODS: My pleasure.

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