crowding out effect

Central bank money rates weigh on the economy

WHAT HAPPENS
The Californian PacWest Bancorp joins the list of American bank failures of 2023. On May 4, the price collapsed by 50.6% to $ 3.37 forcing the bank to seek extraordinary solutions to take over external partners (on the First Republic model).
As has already happened to Silicon Valley Bank, Silver Gate, Signature, and First Republic, just to name the most important, institutions are being targeted by waves of withdrawals of savings that they cannot cope with.
What appeared to be an isolated case relating to Silicon Valley - there was talk of a management error for not having hedged the interest rate risk - instead appears to be a systemic fact. So much so that in his speech on the interest rate decision, Jerome Powell had to start by talking about bank failures, and reassuring that the FED is on track. But he didn't convince…

WHAT TO EXPECT
The banking system is experiencing a shift of deposits from low-yield savings accounts to money markets which now offer over 5% in dollars and over 3% in euros (note that Eurobonds are AAA-rated, thus effectively less risky than deposits banking).
Every rate hike by the Fed and the ECB is making the situation worse and the outflow of deposits is causing a credit crunch. As banks slow down lending, the economy will enter a recession as credit is the primary factor of liquidity for the economic system.
Fed rate futures indicate that the FED will keep rates high until the end of 2023 and only in 2024 will it start cutting them for a total of -2% by 2025. None of this meets the needs of the real economy and certainly not to those of the stock market, which therefore remains overvalued.