Economics: US bank stress - assessing the fallout

Is the US banking crisis over?

The US banking system appears to have stabilised over the last couple of months. Deposits have stopped falling, and banks’ usage of the Fed’s liquidity facilities has stopped rising. Is it too soon to say that the US economy has shrugged off this episode?

Stresses have taken on a different form

The underlying problems that first triggered the stress in March remain unresolved. But it seems likely that these are now manifesting in the form of deteriorating profitability and tighter credit conditions.

Credit weakness implies cyclical weakness

This suggests we have not yet seen the entire fallout from the banking stress. A monthly measure of credit flows that we’ve constructed deteriorated further in the second quarter, suggesting the scope for cyclical weakness is building.