There’s another looming cliff — the end of the student-loan repayment mortarium
Is the banking crisis over? Well, famous last words and all that, but in the early hours of Monday things are looking better: no bank collapsed over the weekend, SVB has a new owner, and even Deutsche Bank XE:DBK shares are trading higher.
“In a worst case scenario it’s possible that a ‘doom loop’ develops between smaller banks and commercial property, in which concerns about the health of these banks leads to deposit flight, which causes banks to call in commercial real estate loans, which then accelerates a downturn in a sector that forms a key part of its asset base, which intensifies concerns about the health of the banks and thus completes the vicious cycle,” the firm warns.
Citing New York Fed data, he says the average student loan payment for a borrower not in deferment was $393 per month — about 1% of spending, depending on which metric is used. “This may sound like a modest hit, but the impact on income is very similar to the tax increases associated with ‘The Fiscal Cliff’ of 2013, which was followed by a noticeable slowdown in consumption,” he says.
“Declining loan demand was already a profitability risk for small and regional banks prior to the recent emergence of stress and deposit flight. Risks have clearly increased over the last month, and they will increase further as household credit quality deteriorates,” he concludes.
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