Financial institutions in the US have enforced more restrictions on their lending standards and guidelines, according to Morgan Stanley's top stock strategist Mike Wilson, after a credit crunch hit due to the fallout of Silicon Valley Bank (SVB) and fear of more bank failures. 

As cited by Business Insider, lending rates have recorded the worst decline ever in the past two weeks, which Wilson believes is the result of the deposit withdrawal rush. 

“The data suggest a credit crunch has started,” Wilson noted, adding that approximately $1 trillion in deposits have been withdrawn so far ever since rates have been hiked by the Federal Reserve a year ago.

Last month, according to Federal Reserve data after the SVB crash, $98.4 billion have been taken out from bank accounts by US clients - mainly from smaller banks. In light of that, the Federal Reserve released an announcement that emergency lending facilities are available to eligible depository institutions.

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SVB was America's 16th-largest bank and marked the second-largest bank failure in US history.

As depositors rushed to withdraw their money following the news, SVB tried to reassure its clients of its solid finances, but that did not stop over $80 billion in shares value from being slashed within 48 hours, followed by a free fall of its stock values until their trade was halted.

'Careful what you wish for'

Wilson believes that major stock indexes that have not been impacted by the economic bank collapse are not to be considered a sign of recovery, but instead, a sign that stocks are threatened with sudden hits similar to those seen in small caps and bank stocks since March.

As he referenced the March Consumer Price Index, which pointed out that the inflation rate hasn't been increasing as much, Wilson said, “To those investors cheering the softer-than-expected inflation data last week, we would say be careful what you wish for."

He also warned that “If/when revenues begin to disappoint, that margin degradation can be much more sudden, and that's when the market can suddenly get in front of the earnings decline we are forecasting.”

On account of that, back in February, Wilson predicted that stocks in the US showing to be reaching unsustainable highs may crash by 26% within months.

Just earlier this month, JPMorgan Chase CEO Jamie Dimon expressed that there are storm clouds on the horizon for the US economy, and recession is looming closer. "I don't know [if more banks will fall this year] but if there are, honestly, it will be resolved and there will probably be less of them. I think we are getting near the end of this particular crisis," he said.

Moreover, he admitted that he believes the banking crisis will increase the chance of a recession, though it might not be the sole cause behind one, adding that "we are seeing people reduce lending a little bit, cut back a little bit, and pull back a little bit. It won't necessarily force a recession, but it is recessionary."

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