Banking in Crisis - A repeat of 2008?

With the demise of Silicon Valley Bank (SVB), Signature Bank and Credit Suisse, are we witnessing the beginnings of another 2008-style banking crisis?

•In March, Signature Bank and SVB both filed for chapter 11, the second and third largest US banks in history to fail. In Europe, Credit Suisse, the second largest bank in Switzerland, with more than half a trillion dollars in assets, followed suit shortly thereafter.

•SVB failure was due to the incurrence of losses on longer-dated bonds, which had to be sold when the bank’s depositors began rapidly drawing capital, forcing the banks to sell these bonds at a loss in this rising interest rate environment.

•After auditors flagged poor risk management practices, Credit Suisse suffered a loss of confidence.  Subsequently, depositors began to withdraw deposits, causing the regulator to step in when key shareholders were no longer able to support the firm with new capital.

•The key driving factors behind these bank collapses were largely idiosyncratic in nature, specific issues relating to the liquidity and risk management practices at those institutions, and therefore, unlike-2008, these were less indicative of broader financial sector risk and balance sheet health in the industry.

•Although it’s impossible to predict when or where the next ‘run on the bank’ (deposit withdrawals) may be, we do not expect interest rate rises to continue as aggressively over the coming periods.

•Additionally, post-2008 Basel III reforms have greatly improved regulation, supervision and risk management at banks globally, notably improving capital adequacy requirements and liquidity coverage ratios much above those levels seen in the last financial crisis. 

•And unlike 2008, coordinated, swift and decisive action from policymakers has meant that investor anxiety and potential contagion impacts have also been contained