Bank Failures, Like Earlier Shocks, Raise Odds of Recession

Banking-sector turmoil raises the odds that the U.S. economy, already widely seen as prone to recession, might actually tip into one.

After a week of federal interventions to stabilize the banking system and market volatility driven by investor uncertainty, the economic outlook now hangs on two factors: private- sector confidence and Federal Reserve interest-rate policies.

Recessions in 1990, 2001, 2008 and 2020 were all accompanied by shocks, including, respectively, Iraq’s invasion of Kuwait, the Sept. 11 terrorist attacks, the collapse of Lehman Brothers and Covid-19. For the first three of those recessions, the economy was...