When banks face instability, they tend to become increasingly conservative. They are more selective in how they make loans, often by raising lending rates and holding more cash to protect themselves against the worst-case scenario of a bank run.
These tighter lending standards could lead to a credit crunch, making it harder for consumers and businesses to get the money they need. Many people believe that this will have a huge impact on the economy, and there are endless views predicting the imminent recession.
However, Jan Hatzius, chief economist and head of global investment research at Goldman Sachs, believes that the recent turmoil in the banking industry and the continued credit crunch may actually help the Fed cool the economy and fight inflation.
