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The regional banking crisis, triggered by the failure of Silicon Valley Bank, has persisted for the past four months. The core issue lies in the decline of bank credit and banks' hesitancy to extend credit amid an inverted yield curve and recessionary pressures. As a result, bank credit has continued to decrease, with the growth rate slowing and even contracting in recent months. Banks have been grappling with the challenge of replacing low-cost deposits with higher-cost borrowings, leading to a reduction in assets and a reluctance to extend new credit. This situation poses a significant hurdle for banks to grow their balance sheets and meet the credit needs of the economy, making it increasingly difficult for the overall economy to avoid contraction.

The decline in bank credit has had a notable impact on lending activities, with banks pulling back on various types of loans. Business Commercial and Industrial loans have experienced a sharp contraction, while real estate loans, particularly in the commercial sector, have also slowed down. The reduction in lending to businesses is expected to have a dampening effect on economic activity. Overall, the persistent decline in bank credit, combined with the challenges faced by banks in replacing lost funding and the contraction of loan portfolios, paints a bleak picture for the economy, making it increasingly challenging to sustain growth.

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