“We will probably be in this state for an extended period of time.”Smaller banks are crucial drivers of credit growth, the fuel that drives the economy. Banks smaller than the 25 largest banks account for about 38% of all outstanding loans, according to Federal Reserve data. But the possibility of other banks having similar problems has led to a sell-off in financial stocks as investors scrutinize banks’ solvency. Smaller banks are likely to respond by tightening standards and slowing lending to boost capital ratios, said Torsten Slok, chief economist at Apollo Global Management Inc., a private equity firm. He expects the US economy to enter a recession by the middle of this year, caused by a decline in lending by smaller banks.

Source: Wall Street Journal March 19, 2023 12:33 UTC