SVB collapse: will the 2008 financial crisis repeat itself? Here’s What the Experts Say

millionaire hedge fund Manager Bill Ackman compared the collapse of SVB to “Bear Stearns” – the first bank to collapse at the start of the global financial crisis of 2007–2008.

Taking to Twitter, Ackman wrote, “The risk of failure and deposit loss here is that the next, least well-capitalised bank suffers a run and fails, and the dominoes keep falling”.

However, some analysts believe that SVB’s downfall is more company-specific for now. Joe Biden The administration has also argued that safeguards enacted after the 2008 financial crisis will protect the nation’s economy amid the shuttering of Silicon Valley banks.

US Treasury Secretary Janet Yellen has expressed full confidence in banking regulators to take appropriate action in response, noting that the banking system remains resilient and that regulators have effective tools to address these types of incidents.

Indian-American Vivek Ramaswamy, who is running for the 2024 US presidential election, questioned whether SVB used ESG factors to price its loans, and compared it to the “major cause” of the 2008 financial crisis. . In a video message, Ramaswamy wrote, “A major cause of the 2008 financial crisis was the use of social factors to drive credit (again to promote home ownership). When we don’t learn the lessons, history repeats itself.” : Does Silicon Valley Bank use ESG factors to price its loans? Roll that log and see what crawls up”.

US financial commentator Robert Armstrong states in his latest opinion piece that “SVB’s collapse is not a harbinger of another 2008”.

Armstrong wrote in the Financial Times that “the danger of contagion within banking system appears to be limited. But at the end of each central bank rate-hike cycle, there comes a stage where things in the financial system start to break down. These breakdowns, whether small or large, reduce investor and consumer confidence, increasing the likelihood of a recession. failure of svb Doesn’t start another 2008, but it does mark the beginning of the breakage phase”.

The risk of infection within the banking system appears to be limited. But at the end of each central bank rate-hike cycle, there comes a stage where things in the financial system start to break down. These breakdowns, whether small or large, reduce investor and consumer confidence, increasing the likelihood of a recession. The SVB failure doesn’t herald another 2008, but it does mark the beginning of a breakdown phase”.

Economist Stephanie Pomboy told Fox News, “We’re on the verge of a 2008-type financial crisis and I’m not trying to be hyperbolic … We’re getting some big results, and I think it’s going to end.” gonna be very fast because of all the leverage”.

Mike Mayo, senior bank analyst at Wells Fargo told cnn.com, said the SVB crisis could be “a idiosyncratic situation.”

“It’s night and day vs. global financial crisis 15 years ago,” he told CNN’s Julia Chatterley on Friday. Back then, he said, “banks were taking excessive risks, and people thought everything was fine. Now everyone is worried, but beneath the surface, banks are more resilient than they’ve been in a generation.”

What was the financial crisis of 2007-2008?

In 2007, the largest Financial Crisis As the Great Depression hit the world after bad advice tied to mortgage-backed securities housing loan fell in value. The Panic on Wall Street led to the demise of Lehman Brothers, a firm founded in 1847. Because the major banks had extensive contacts with each other, the crisis led to a widespread collapse of the global financial system, leaving millions of people out of work.

How did the SVB crisis happen?

The Silicon Valley bank’s decline stemmed partly from the Federal Reserve’s aggressive interest rate hikes over the past year.

When US Fed rates were near zero, banks loaded up on longer-term, less-risky Treasuries. And with the US Fed’s rate hikes steadily increasing through 2022 to fight against inflation, the value of those Property has come down, leaving banks sitting on a pile of unrealized losses.

According to a Moody’s report, high interest rates have mostly affected tech startups. This prompted many tech firms to reduce the amount deposited in SVBs to fund their operations.

Furthermore, as rates rose, the value of Treasuries as well as other securities decreased.

Initial Public Offerings market closed for many due to high interest rates startup And made private fundraising more expensive, some Silicon Valley Bank customers began pulling money out to meet their liquidity needs. That culminated in the Silicon Valley bank this week looking for ways to meet its customers’ withdrawals. SVB sold a $21 billion bond portfolio.

SVB announced Thursday that it will sell $2.25 billion in common equity and preferred convertible stock to fill its funding hole. Some SVB clients moved their money out of the bank on the advice of venture capital firms such as Peter Thiel. Future Fund.

It spooked investors like General Atlantic that SVB stock was up for sale, and the capital-raising effort fell through late Thursday.

About Silicon Valley Bank (SVB)

Established in 1983, svb Provided financing for nearly half of US venture-backed technology and healthcare companies. It is the 16th largest bank in the US and was recently ranked as “America’s Best Bank” in the Forbes 2023 list. FSB has received this title from Forbes for the 5th consecutive year.

The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.

Nearly half of US technology and healthcare companies that went public last year after receiving initial funding from venture capital firms were clients of Silicon Valley Bank, according to the bank’s website.

The bank boasts of its connections to major tech companies such as Shopify, ZipRecruiter, and one of the top venture capital firms, Andreesson Horowitz.