Research suggests falling share prices tend to hit loan growth.
Since the start of March global banks’ share prices have tumbled by more than 10%. Or perhaps people think governments will step in to protect them.ĭamage to banks will prove more consequential. Perhaps after pestilence and war, ructions in the banking industry seem more manageable. It is hard to say why people are so blasé. Google searches for terms related to “banking crisis” jumped in early March, but have also fallen again. German business sentiment improved in March. An “uncertainty index” derived from analysis of newspapers by Nick Bloom of Stanford University and colleagues rose a little when the turmoil began, but is drifting back down. A survey by Ipsos, a pollster, found that from early to mid March American consumer confidence grew a bit, even as startups in Silicon Valley worried their cash would vanish. Yet unless the turmoil continues, the impact is unlikely to be that significant-because bank collapses have made surprisingly little impression. If such a hit were to materialise, global growth would fall from 3% to 2.5%. imf research published in 2013 finds that leaps in uncertainty-caused by things like America’s invasion of Iraq and bank collapses-can trim annual gdp growth by 0.5 percentage points, largely because firms delay investment. Fortunately, there is reason to think recent turmoil will have less impact than many fear.
Financial institutions, fearing losses, may pull back on lending, depriving firms of capital. If people fear a banking crisis and the accompanying economic pain, they may cut consumption and investment. As the JPMorgan analysts noted, economists have two worries.
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