Chapter 11 Filings Rise… Bank Collapse?

Chapter 11 filings rise…

Art Van Furniture, Bar Louie and True Religion all sell different products, but they all have one thing in common: Each has gone bankrupt this year, as the coronavirus-induced recession that started in February flattens businesses large and small.

Recent data show 722 companies sought bankruptcy protection around the U.S. last month, a 48% increase from the year-ago period. Chapter 11 filings also jumped in April and March, as states started imposing business restrictions amid the coronavirus outbreak.

“This is a sign that already weak companies are succumbing to the lockdown recession,” Chris Kuehl, an economist with the National Association of Credit Management, which tracks bankruptcies, said in a research note. Businesses that were struggling before the pandemic “are starting to get in some real trouble,” he added

Among those long-distressed companies finally tipped into bankruptcy by the economic fallout from COVID-19: Gold’s GymHertzJ. CrewJ.C. Penney and Neiman Marcus.

Bank Collapse?

After months of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there’s another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed.

You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse.