A new analysis says that stress on local and regional banks that caused a greater lending pullback could translate into an extended employment collapse in small businesses and commercial real estate. The think tank Employ America noted that jobs in these economic segments are "already under stress from post-pandemic recovery dynamics."

That is one reason why the Federal Reserve and Biden administration are looking at the collapse and shuttering of Silicon Valley Bank and Signature Bank as dangerous. Not that SVB and Signature were generic in their operations or that they were deeply tied to lower tiers of banking. SVB specifically, Employ America noted, had a "very particular business model" that was tied to the tech startup ecosystem. Separately, Signature was seen as tied to the cryptocurrency boom. In December 2022, the institution said it would shrink deposits tied to crypto by $8 billion to $10 billion, according to Yahoo Finance.

But effects can extend outward in the banking industry. "As Powell alluded to at last week's FOMC press conference, there is a large literature about the connections between credit conditions and economic activity," Employ America wrote. "An important subset of that literature examines the effects of declining credit supply to firms arising from shocks to specific banks. When the supply of credit from one particular bank declines, firms connected to that bank often can't cleanly substitute by going to a different bank. Bank-firm relationships are frictional, and the ramifications of a pull-back in lending at specific banks will depend on the industries and types of firms that the particular bank works with."