The current banking crisis brings to mind the similar global phenomenon that occurred in 2008, similarly gestated in the US banking system.
However, 15 years have passed since that crisis and some things have changed, others not so much.
Here are some differences and similarities between these two events that have already been recorded in the financial history of the United States and the world.
Differences 2008 vs 2023
1. 2008 was a global crisis, now it seems regional
Without forgetting that an institution with global systemic risk has already gone bankrupt, Credit Suisse (although its problems were previous), the 2008 crisis was totally global because the relevance of the Lehman Brothers collapse was too. Today we are facing a somewhat more local or regional crisis. The effect seemed similar, and could have been, but so far it has been contained.
Definitely we cannot compare the collapse of institutions like Silicon Valley Bank or Signature Bank with that of Lehman Brothers. This last institution was a benchmark and not so much because of its age, with 158 years at the time of its bankruptcy, but because it was considered at that time the second largest bank in the country with assets of 650 billion dollars, and one of the 5 largest banks in the world. It definitely doesn’t seem like we’re going to repeat history, at least not in this sense.
2. Unconditional monetary support in 2023
Although in 2008 a period began in which central banks and financial authorities in general ceased to be passive, in 2023 monetary support is unconditional.
If we pay attention to what the US Treasury Secretary herself, Janet Yellen, said yesterday, we will know that the United States is willing to give as much money as possible to maintain the stability of its financial system, something that did not exist in 2008.
3. Global coordination, but limited in 2008; today a single financial circuit
In 2008, the central banks implemented global coordination to face the crises that were unleashed after the collapse of Lehman Brothers, but in the end everything was the regional responsibility of each respective monetary institution. Today the central banks have announced the largest monetary operation in modern history; Thus, the place where it is required will have a massive presence of the central banks of the world’s powers, there are no borders to face the crisis and no part of the world, no matter how far away, is not covered.
4. Banks are no longer too big to fail, but they don’t do it alone
Let’s take a moment on what happened with Credit Suisse, and at the same time, let’s go back to 2008.
In that year it was said that several more banks of the giants must have failed, not just Lehman Brothers.
But the argument was that there were banks that were too big to fail, and they were bailed out somehow.
Today we know that Credit Suisse, one of the 20 systemic banks in the world, that is, one of the largest in the global system, went bankrupt.
However, it is striking that the bankruptcy was operated in a weekend by the government of his country. The argument is over: unlike in 2008, today banks are no longer too big to fail or it doesn’t matter that they are. But they do not go bankrupt alone, the governments and monetary systems of the respective country operate behind them. to ensure the stability of the financial system as a whole.
5. Solvency crisis of 2008; liquidity crisis in 2023
The two banking crises appear to have had different origins; In 2008, the bankruptcy of Lehman Brothers was caused by its insolvency as it did not have the resources to cover the excessive indebtedness, the registered losses and the massive withdrawals of deposits from its clients.
In 2023 it has been pointed out that at least the Silicon Valley Bank and the Signature Bank did have the necessary solvency, but not the immediate liquidity, that leads us to a point that is recorded in the similarities and that, ultimately , led to the same result: the bankruptcy of banks.
similarities
1. Central banks stopped being passive
Until before 2008, central banks seemed to live in another world, one in which crises seemed to be alien; that was the big mistake of 1929 that led to the Great Depression, according to scholars like Ben Bernanke.
Bernanke precisely faced the 2008 crisis as head of the Fed and if he did anything it was to get the organization out of that “old world”, with him marks the beginning of the era of central bank interventions in crises. The big question is, without those interventions, what would have happened? Everything seems to indicate that the crises would be much deeper.
As we know, today the central banks have a decided participation and everything indicates that this will be the case if there are more periods like the current one.
2. Rates, effects in both periods
In 2008 the Fed had finished its bullish cycle and the effects were felt in the mortgage sector; today the Fed is also escalating and the effects are being felt in the banking sector.
When the Fed moves its rates, and indeed when any central bank does, there are always consequences, which is why we should care what central monetary institutions do.
3. Poor regulation
Neither in 2008 nor in 2023 did the regulations seem to prevent what was to comeor at least they did not do it with sufficient preventive force.
In 2008, everyone wondered how the authorities didn’t realize that Lehman Brothers was headed for the precipice. The same question is asked today by the markets,no one could have prevented what could happen to the regional banks of the United States?
One thing is clear, the recurring crises are a symptom that things are not going well in the global economy, and it is something that is several years old, if not the entire present century.
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