Top U.S. Economist Says A “Break” Is Coming Soon

( – Moody’s Analytics Chief Economist Mark Zandi has said that recent problems with banks were an inevitable consequence of Federal Reserve interest rate increases and that the problems are likely to continue because inflation has not been reduced. He said the next 12-18 months are going to be “uncomfortable” and added, “It’s going to get bumpy. And I don’t think it’s over. Inflation is still high. The Fed’s still got to get inflation back in.” He also stated that the banking system overall is a fragile one and is finding itself under increasing pressure.

The recent collapses of the Silicon Valley Bank (SVB) and the New York-based Signature Bank have made customers nervous and share prices have hit a steady decline. SVB saw withdrawals worth $45 billion in a single day which led to the second-largest bank collapse in US history. It was immediately taken over by Federal Deposit Insurance Corp. (FDIC) – the government department that oversees banking. The FDIC has since announced that it will sell SVB to the North Carolina-based First Citizens bank. SVB’s customers will automatically become First Citizen customers and any SVB branches will reopen under the First Citizen banner. The deal includes the sale of $72 billion of assets for the knockdown price of $16.5 billion. 

In a related development, the Federal Reserve said it raised concerns about SVB and its risk management four years before it collapsed. SVB received a warning from the Fed back in 2019. The Matter Requiring Attention order did not enforce any requirements but did warn the venture-capital arm of the institution that it was concerned about the risks it was taking. A second warning was sent to the bank in 2020 that said its system did not meet the standard expected of an institution handling more than $100 billion worth of assets. The Federal Reserve sent the second warning when the bank had seen a huge jump in assets from $70 billion to $114 billion in one year.

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