In One Chart: Bank stocks may need to drop at least 30% before its time to worry about the economy, says study

by | May 4, 2023 | Stock Market

U.S. bank shares, brutalized since the early March collapse of Silicon Valley Bank, may have further to drop before investors need to worry about economic growth, according to Oxford Economics. A look at 150 years of past bank failures indicated that recent stress in bank stocks likely isn’t yet enough to signal fallout to the economy.

“Bank failures on their own often have a limited economic impact,” Jamie Thompson, head of macro strategies at Oxford Economics, wrote Thursday in a client note. Furthermore, when bank shares dropped less than 30%, his team found the typical impact was about a 0.4% decline in the market value of goods and services produced (GDP), on average over the first five years. However, GDP fell about 3% over the same stretch when bank shares tumbled 30%-60% in past episodes of bank failures, and around 8% when they shed over 60%. Read: First-quarter GDP climbs at lackluster 1.1% pace as U.S. businesses retrench While overall U.S. bank stocks were off about 20% since early March (see chart), “the fall to date is only around a third of the typical declines in bank stocks seen in bank failure episodes during the global financial crisis,” according to Thompson’s metrics.

Bank stocks fell 30% during the Savings & …

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