Stock markets are declining, oil prices have dropped to levels not seen since 2021, and gold prices are trending higher. These are the signs that you would expect from a recession. The stock price of Credit Suisse and three US banks collapsed, causing it to drop to records. It’s not surprising at all that the market is having jitters. It is not clear if this is a temporary issue or if the situation will get worse.
The contagion problem
There has been a lot of talk in the media of “contagion”. This means that banks are affected by the problem. For a cascading effect, it continues. Regulators have come out to repeatedly assure the market that there isn’t any “contagion” risk.
The problem with this is that it could lead people to think that a company which doesn’t have investments in SVB (or any of the other banks in trouble), then it’s safe. There’s no direct contact that could spread contagion. While that certainly is a concern, it’s also possible for other bank or businesses to be in trouble without a direct link to one of the banks that recently went under.