Overall, the financial sector appears well positioned for an economic downturn. Arguably, the predicted recession has been one of the most forecasted in economic history. As such, financial institutions have had plenty of time to prepare their balance sheets accordingly, which they have.
We are unlikely to see the negative feedback loop seen in many recessions of people losing jobs, defaulting on debt, and causing financial institutions to tighten more on credit conditions to maintain their capital ratios in accordance with regulatory requirements (slowing the economy further).
Both banks and credit unions have seen new loan originations ebb as rising interest rates and tighter lending standards cool demand. Credit unions saw a significant drop-off in Q1 2023 compared to the same quarter the previous year.
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