Crisis in US banking triggers alarms

The bankruptcy of Silicon Valley Bank (SVB), the largest since the 2008 financial crisis, as well as the collapse and closure of Signature Bank, not only caused turbulence in the banking sector in both the US and other markets, but that set off alarm bells about the possibility of a global financial crisis like the one that hit the world 15 years ago.

The White House insists that it is “not at all” a similar scenario and maintains that now the panorama is “very different” compared to what happened back then, when investment giants like Lehman Brothers and Bear first went bankrupt. Stearns, which dragged down more than 500 federally insured banks in the US alone, which collapsed between 2008 and 2015, reports The New York Times.

However, both the media and simple witnesses of those events do not stop comparing the current situation and the 2008 crisis, which ended up affecting practically the entire world. Will there be a domino effect again?

Unlike the large banks that triggered the global crisis in 2008, the SVB was largely dependent on a single risk sector of the economy, both for its depositors and other customers. This means that the relatively smaller California bank, which works with emerging technology companies, was free of the sophisticated financial entanglements with other institutions that could bring down the entire sector.

Another difference with 2008 is that that crisis was caused by assets that were difficult to calculate (for example, mortgage-backed securities), making it difficult for banks to estimate how much they were worth.

This time, the cause of the uproar is US Treasury bonds and other bonds in general, which are easy to evaluate and sell. This, in turn, makes the intervention of state regulators “much more effective,” CNN maintains.

For his part, US President Joe Biden assured on Monday that the country’s population can continue to trust the banking system, while defending the abrupt measures taken by his Government to prevent the spread of consequences of the SVB bankruptcy and Signature Bank. However, the shares of many banks continued to fall after the North American president’s speech.

Thus, the credit rating agency Moody’s put the ratings of six US banks on downward review this same day, due to “extremely volatile” financing conditions.

Despite the review by Moody’s and the stress accumulated by the financial sector due to the continuous increase in interest rates by the Federal Reserve to combat inflation, experts consider it unlikely that a crisis scenario like that of 2008 will materialize. and that the domino effect engulfs the banking sector.

Mike Mayo, a senior analyst at Wells Fargo, said last Saturday in statements to CNN that the SVB crisis cannot be compared to that of 2008. “This is like night and day, compared to the financial crisis.” world 15 years ago,” he emphasized, specifying that in that crisis the banks assumed “excessive risks,” while now these entities are “more resilient.”

For his part, Lawrence Summers, former US Treasury Secretary, maintained that the SVB crisis does not appear to be “a broadly systemic problem,” although he warned that the venture capital and high-tech sector will suffer the effects of the turbulence. Likewise, the CEO of the Jefferies Group investment group, Rich Handler, stated that he does not see risks of a repeat of the 2008 crisis.

“In 2008, nearly the entire financial system was overburdened and filled with poorly valued illiquid assets. This is not the case today. Our perception across the range of institutions under scrutiny is that any problems are finite and idiosyncratic — in other words, they do not threaten the entire system and should not lead to endless contagion, as long as we remain calm,” Handler wrote in a letter to clients and employees of his firm, cited by Bloomberg.

Meanwhile, these estimates are reflected in the changes of some stock market indicators. Thus, the KBW index, which tracks the securities of the 24 largest US banks, and which plummeted by 16% last week, marking the worst result since March 2020, grew again this Tuesday and gained 3 .2% at the time of writing this note.

Likewise, S&P 500, Nasdaq and Dow Jones, considered the three main stock market indices on Wall Street, experienced slight increases this day, growing between 1 and 2%. This would mean that investors estimate that the risk of large-scale contagion in the banking system has been contained, CNBC reports. (RT Information).

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