Business Leaders See 1 in 3 Chance of ‘Full-Blown Financial Crisis’

Recent troubles in the U.S. banking system could very well lead to a “full-blown financial crisis” on par with the Great Financial Crisis, a survey of business leaders found. 

Oxford Economics surveyed leaders at its client companies in April. On average, they gave a one-in-three chance of a major financial catastrophe. More than half the poll’s respondents said either credit tightening or a full-blown financial crisis were a significant risk in the medium term.

The poll highlighted how the still-smoldering banking crisis, which began in March with the collapse of Silicon Valley Bank, might pose a future threat to the economy. 

Amid higher interest rates from the Federal Reserve’s campaign of anti-inflation rate hikes, and especially since banks started failing, financial institutions have grown far more tight-fisted about lending. That makes it harder for businesses to hire and keep employees, or in some cases to keep their heads above water.

“What turns struggling business into failed business is, when the bank pulls the plug, the company runs out of options,” James Knightley, chief international economist at ING, said in a commentary this week. “Job losses are the inevitable consequence.”

Credit tightening, and its effects on companies, could play a major role in determining whether the U.S. economy enters a recession in the coming months. Banking problems have worsened the outlook for an economy and job market that have so far defied predictions of a recession.

“While the world economy has proven resilient, banking system problems have persisted since early March and have raised concerns over the potential for a severe crisis,” researchers at Oxford Economics said in a commentary accompanying the poll.