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Fallout from the Banking Crisis: What’s Ahead?
April 5, 2023
By Knowledge at Wharton
During a recent LinkedIn Live event, a panel of Wharton experts noted that the fallout from Silicon Valley Bank’s failure will likely be contained within the commercial real estate sector. Much, however, depends on the Fed’s rate moves, they said.
Predictions of dire days ahead for the U.S. economy in the wake of the failure in March of Silicon Valley Bank (SVB) are overstated, Wharton experts said at a LinkedIn Live event titled “Understanding the Banking Crisis” on March 30, organized by Wharton Executive Education and co-hosted by the Wharton Initiative on Financial Policy and Regulation (WIFPR). (Watch a video of the complete presentation above.)
Outside a few pockets, credit risk — or the likelihood of debt defaults — has held up relatively well, according to Wharton finance professor and senior vice dean of research, centers, and academic initiatives Joao F. Gomes. “There is not a sense that credit spreads have widened significantly; there is not a lot of nervousness even in the high-yield sectors,” he said.
Commercial Real Estate Hit Hard
The commercial real estate industry is especially hard hit by the SVB collapse and the shock waves it has sent across small and midsized regional banks, noted Wharton professor of real estate and finance Susan M. Wachter. “Regional banks are slowing lending and deal flows are on hold,” she said, pointing out that regional banks make up 70% of overall bank lending to the real estate sector. The office space sector is already facing pressure to transform itself with rising vacancies caused by remote work in the COVID aftermath. Rising interest rates have put downward pressure on prices and accentuated that need, she added.
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