Research Briefing | Mar 14, 2023

What US bank failures mean for our forecasts

The failures of Silvergate Capital and Silicon Valley Bank have not changed our baseline forecasts for GDP growth, inflation, or policy rates. But they do highlight the risk that a severe tightening in financial conditions will have a material impact on growth – beyond what policymakers intend – and lower policy rate forecasts.

What you will learn:

  • We have quantified the impact of a broad repricing of risk premia in global financial markets. Based on our modelling, sharp falls in equity markets, tighter credit conditions, and falling asset prices could push global GDP 3% below baseline by the end of 2025.
  • To incorporate these impacts into our baseline forecasts we would need to see three conditions fulfilled: 1) widespread bank funding stress; 2) deficient or delayed provision of central bank liquidity; and 3) persistent bank funding concerns and evidence of a knock-on impact on bank lending criteria.
  • Based on the information available so far, we think wider liquidity events are unlikely, keeping our baseline scenario intact. But the balance of risks around it has shifted to the downside.
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