Goldman Sachs raised the chances of a recession in the United States to 35%, up 10 percentage points from its previous prediction, in the aftermath of Silicon Valley Bank‘s collapse and a dip in stock futures for large U.S. banks.
The bank released its recession odds on Thursday, “reflecting increased near-term uncertainty around the economic effects of small bank stress.”
SVB COLLAPSE: BIG FED RATE CUTS NOW EXPECTED IN MAJOR REVERSAL OVER RECESSION FEARS
Goldman Sachs Chief Economist Jan Hatzius is the only Wall Street economist to raise the chances of a recession following a week of financial turmoil. He predicted GDP will fall from 0.3% to 1.2% for the next quarter.
This information comes as Treasury Secretary Janet Yellen is set to testify before the Senate Finance Committee on the status of the U.S. banking system.
“I can reassure the members of the committee that our banking system remains sound and that Americans can feel confident that their deposits will be there when they need them,” Yellen is expected to say, per her prepared remarks.
“This week, the government took decisive and forceful actions to strengthen public confidence in our banking system,” Yellen will add, noting the Treasury Department’s work with the Federal Reserve and the Federal Deposit Insurance Corporation to protect all depositors after the collapse of Silicon Valley Bank on Friday and Signature Bank’s subsequent failure on Sunday.
SVB, the 16th largest bank in the U.S., collapsed last week after a run on the bank, leading to clients withdrawing $42 billion in a single day. By the end of Thursday, the bank had a $958 million negative cash balance, and its stock price had fallen about 60%.
Fears about the strength of financial institutions stemming from the collapse of the two banks led to a dip in stocks and shares in both the U.S. and in Europe. Credit Suisse, a Swiss bank, had to borrow over $50 billion from the Swiss National Bank after shares hit all-time lows two days in a row.
The financial crisis has affected four of the U.S.’s biggest banks: JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup. Shares in JPMorgan Chase slumped by 4.72%, Bank of America’s shares dropped by 0.9%, Wells Fargo’s by 3.29%, and Citigroup’s by 5.44%.
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Stock futures for the Dow and several other groups fell Wednesday morning, as well. Futures tied to the Dow fell well over 600 points, or 1.9%, and the S&P 500 and the Nasdaq-100 futures fell 1.9% and 1.6%, respectively, as of early Wednesday morning.
In Europe, Credit Suisse’s shares dipped 30% before climbing back up to a 24% decline. Credit Suisse Chairman Axel Lehmann said on Wednesday that asking for government assistance is not a topic of conversation.
