Key Highlights from this interesting read:
The recent stress in the banking system has increased the chance of a hard landing in the US in the next 12 months from 55% to 95%.
In the absence of a strong deposit insurance, it is difficult to predict a sustainable landing point for the current crisis.
There had been an expansion in the Feds Balance sheet and there has been a weakening in the banking capital pecking order thanks to the CS AT1 bonds.
A cyclical recession is a short lived and mild contraction where the US unemployment rates go up by 2-3pp with a probability of 80%.
A balance sheet recession is a more severe and longer lasting contraction where the US unemployment rises by more than 3pp.
US banks reported tighter standards and lower demand in all commercial real estate loans.
Bank lending growth was set to decelerate with a chance of credit contraction but would not be as bad as GFC.
Banks with less than $250bn in assets play an important role in the US economy accounting for 60% of real estate lending, 80% of commercial real estate lending and 45% of consumer lending.
The credit crunch for small businesses is likely to impact the labor market significantly as accounts for just under half of all private sector employees.
The cost of capital for all European banks have gone up increasing the risk of a recession after the CS bond write off.
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