WASHINGTON—Tighter loan underwriting by banks, prompted by the failure of Silicon Valley Bank and Signature Bank, is going to lead to a slowdown in economic growth in 2023, according to the International Monetary Fund estimated, which further cautioned that rising interest rates pose a threat to the global financial system.
According to a new IMF report, lending capacity at U.S. banks will decline by 1% this year due to the fall in the value of many bank stocks as investors reassess the health of midsize banks.
In turn, the reduction in lending will shave 0.44 percentage point off U.S. gross domestic product in 2023, the IMF said.
“Because regional and smaller banks in the United States account for more than one-third of total bank lending, a retrenchment from credit provision could have a material impact on economic growth and financial stability,” the IMF said.
Economic Forecast
In a separate report, the IMF is forecasting the U.S. economy will expand 1.6% this year, down from 2.1% in 2022. The IMF said it expects the global economy will grow 2.8% in 2023, a slowdown from 3.4% in 2022, as nations continue recovering from slumps caused by the pandemic and the war in Ukraine.
The IMF added that global growth is being helped by China, which is reopening after its long pandemic lockdowns. But inflation in China eased for the second straight month in March, a cautionary signal on the strength of the nation’s recovery.
Risks to the global economy include the volatile banking sector, high inflation and climbing interest rates, the IMF said.
Treasury Secretary Sees Strength
Separately, Treasury Secretary Janet Yellen said the U.S. economy remains strong after the banking turmoil.
“I’ve not really seen evidence at this stage suggesting a contraction in credit, although that is a possibility. I believe our banking system remains strong and resilient,” she said. “So, I’m not anticipating a downturn in the economy, although, of course that remains a risk.”
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