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Opinion
Mohamed A. El-Erian

What Happens in the Banking Sector Won’t Stay There

The fallout from Silicon Valley Bank and other institutions adds to the headwinds for economic growth.

US depositors have reallocated part of their funds away from smaller banks after the collapse of SVB.

US depositors have reallocated part of their funds away from smaller banks after the collapse of SVB.

Photographer: Patrick T. Fallon/AFP/Getty Images

The sudden loss of confidence by depositors in some US banks is causing many to focus on the scope for financial contagion and the needed policy responses. What should not be overlooked is the other, and slower, contagion channel in play — that involving enablers of economic growth — which is less in focus but also important in determining how quickly the world’s largest economy will overcome this abrupt air pocket.

Banking is based fundamentally on trust. Any erosion in trust can, and does, lead to outcomes that were deemed highly unlikely or even unthinkable just a few days earlier.