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Capital Dynamics Private Credit Views - Crisis of Confidence: U.S. Banking System Under Fire


Reasons behind the collapse of Silicon Valley Bank (SVB) and Signature Bank and the ensuing crisis of confidence will likely be debated for years to come. No doubt, with the benefit of hindsight, pundits will argue that the events were entirely predictable and avoidable. It will certainly be hard to argue how the combination of (i) years of accommodative monetary policy; (ii) a pandemic that largely shut down the global economy; (iii) a protracted ground war in continental Europe; and (iv) central banks rapidly raising interest rates to temper inflation resulting from all of the above would not result in something breaking. The jury is out on whether government intervention will be sufficient to restore faith in regional banks and the distributed banking model that underpins the U.S. financial system, but it may be worth reflecting on what can be learned from the events and how it might impact direct lending markets.


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