As we continue our series examining the effects of higher interest rates and a potential recession on private credit, we also now need to throw in the impact of recent bank failures.

It’s clear all sorts of economic and market indicators – the Treasury curve, Treasury spreads, stock prices, to name a few – are flashing to a more conservative risk posture. Analysts say the failures of Silicon Valley, Signature, and Silvergate banks were the equivalent of at least a 25 bps Fed hike, and perhaps as much as a 1.5% increase.

Was the Fed’s tightening by another 25 bps warranted? Opinions as usual are mixed. Some hoped for a pause; others think hawkish messaging on inflation should continue, if for no other reason than to sustain the central bank’s credibility on its mission.

Beyond liquid markets, reactions among investors and managers is muted. “I think things will settle down with the banks,” one friend told us, “assuming First Republic finds a white knight.” Or knights, as the case may be. Unclear at press time what that will involve.