The case for fear and, more to the point, recession, isn’t difficult to make now.

Notwithstanding Wall Street’s $30 billion vote of confidence in the US banking system, concerns lingered Friday. First Republic shares traded sharply lower, and contagion worries were pervasive.

Irrespective of whether we’re all staring down a full-blown crisis, the odds of an economic downturn are clearly higher than they were just two weeks ago. As discussed in these pages on too many occasions to count over the past several days, if America’s community banks and regional lenders suffer a prolonged period of operational challenges, it’ll bode ill for lending, and thereby for the economy.

BofA’s Michael Hartnett got the (good) idea to put the small business lending series from the Fed’s senior loan officer survey on top of the already infamous chart showing the surge in borrowing from the Fed’s discount window.

The visuals above (both of them) speak for themselves, and rather loudly. When there’s a banking crisis, and lending standards tighten, credit to Main Street can dry up, and that can adversely impact small business sentiment.

Of course, small business sentiment as measured by the NFIB’s gauge has been depressed for a year amid an acute dearth of available workers and stubbornly high inflation. The last thing the nation’s small firms (who, as of last month, were feeling “cynical and negative“) need, is a crisis at their banks.

Alas, that’s where we may be headed, and the read-through for the broader economy isn’t ideal. “Banking crises are followed by tighter lending standards and lower risk appetite,” BofA’s Hartnett said. “Small businesses are the most negatively affected, as [they’re] most reliant on regional bank lending.”

As I never tired of reminding readers, small businesses comprise 47% of private sector employees in the US and accounted for 62% of net new job creation since 1995, according to the government. While corporate America might’ve hijacked capitalism and society more generally, small businesses are the lifeblood of the world’s largest economy.

Hartnett drove it home. “US small businesses create two-thirds of jobs in America, so lower availability of credit [could] cause a surge in unemployment.”

Oh, and note that banks with under $250 billion of assets make up 80% of commercial real estate lending.

That could be problematic too. “With very high US office vacancy rates, commercial real estate is widely seen as the next shoe to drop,” Hartnett went on.

The bottom line, he said, is that “2023 = credit crunch = recession.”