Bigger Pockets: SVB’s Collapse: Is Real Estate at Risk in The Fallout?
The banking system has seen the second and third largest failures in history, thanks to the seizure of Silicon Valley Bank and Signature Bank. While these two banks were lending heavily for technology and cryptocurrency projects, a wider fear has spread.
The fear is that local and community banks are in trouble. Depositors have shifted their capital towards bigger banks as a result. Yet it’s these smaller banks that do substantial lending for small businesses and mortgages.
The end result? We could see more economic turmoil. And nearly every asset could see an impact, especially real estate.
We may even see a bank crisis hit banks that are solvent. That’s because a bank panic occurs from a perception of weakness. That may not be the reality of it. But if enough depositors want to move their money, that perception of weakness can become a reality.
Investors are likely to be more cautious in the months ahead as bank balance sheets appear weaker than before. While the recent bank failures have spurred the Federal Reserve to be more cautious, interest rates still remain close to 15-year highs.
With inflation still running at 6 percent, a shift lower in interest rates now could mean inflation stays higher for longer. Yet a bank panic could mean a recession and lower valuations in assets across the board.