There are some key differences between the collapse and fallout of Silicon Valley Bank and Signature Bank and what happened in 2008.
For one thing, the 2008 crisis was, in part, worsened by financial institutions holding assets (like mortgage-backed securities) that were difficult to value, making it hard for banks to determine how much they were worth. This time, however, the assets causing trouble for banks (US Treasuries and bonds) are easy to value and sell. That also makes intervention by the federal government much more effective.
And it has taken measures. This time around, the US federal government stepped in 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 large US banks have the money to weather storms — they’re regularly stress-tested by the Federal Reserve to make sure that they can.
“Compared to 2008, the system is more transparent, with a more solid foundation, and the government has identified the remaining problems and put programs in place to deal with them,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.
But that doesn’t mean there isn’t more pain ahead. Smaller banks – like SVB was – aren’t put through the same stress-testing larger banks have to go through. And shares of banks, both regional and large, plummeted on Monday.
“This is bad news for US bank shareholders,” wrote BlackRock analysts in a note on Monday. “We see knock-on effects for the economy — reinforcing our expectation of recession.”