Bank Closures Ease Fed's Rate-Setting Agony

In a strange twist, it's possible that the banking meltdown actually did some work for the Fed in bringing down prices without raising interest rates, Nicole Goodkind reported for CNN Business.

Photo Insert: Fears of a bank run cause lenders to take fewer risks with their capital reserves to ensure they have enough cash to cover any potential withdrawal requests

Fears of a bank run cause lenders to take fewer risks with their capital reserves to ensure they have enough cash to cover any potential withdrawal requests, said analysts at Pantheon Macroeconomics.

That makes them "disinflationary events," they wrote in a note on Tuesday.

Economic growth could be reduced by as much as half a percentage point in 2023 if small and midsize banks tighten their lending standards. That could have the equivalent effect of the Fed hiking rates by half a point, said Goldman Sachs economists on Tuesday.

That's because banks with less than $250 billion in assets account for about 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending, according to Goldman analysts led by chief economist Jan Hatzius.

Torsten Slok, chief economist at Apollo Global Management, estimated in a note that the banking meltdown could have an even larger effect on the economy, equivalent to a percent-and-a-half rate hike by the Fed.

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