There are some key differences between the decline and fall of Silicon Valley Bank and Signature Bank and what happened in 2008.
For one thing, the 2008 crisis was exacerbated because financial institutions held assets (such as mortgage-backed securities) that were difficult to value, making it difficult for banks to determine how much they were worth. However, at the moment, it’s easy to value and sell assets that cause problems for banks (bonds and US Treasuries). This makes central government intervention more effective.
And he has taken action. This time, the US federal government intervened early to guarantee customer deposits and restore confidence in the US banking system.
The Federal Deposit Insurance Corporation (FDIC) insures depositors up to $250,000 and major U.S. banks have cash to weather storms; The Federal Reserve is constantly stress testing to make sure they can do that.
“Compared to 2008, the system is more transparent, in a stronger position, and the government has identified remaining issues and put in place plans to address them,” said Brad McMillan, chief investment officer of the Commonwealth Finance Network.
But that still doesn’t mean there’s no pain. Smaller banks like SVB are not subjected to the same stress tests that larger banks have to go through. Shares of regional and major banks also fell on Monday.
“This is bad news for US bank shareholders,” BlackRock analysts wrote in a note on Monday. “We see knock-on effects for the economy, which reinforces our recessionary expectation.”