How The Collapse Of Credit Suisse, SVB And Signature Bank Relate To The 2008 Financial Crisis

Fear that the U.S. may be headed for a 2008-style recession have increased recently, amid several big-banks failures. When Credit Suisse AG CS reported “material weakness” on March 14, worry of a broader collapse in the financial sector peaked, and “Rich Dad, Poor Dad” author Robert Kiyosaki predicted the Swiss bank would collapse.

Fear subsided on Sunday when UBS Group AG UBS acquired Credit Suisse for 3 billion Swiss francs ($3.25 billion), causing the S&P 500 to rally about 0.8%.

What’s Ahead

The news comes ahead of the Federal Reserve’s decision on whether it will continue to hike interest rates and if so, by how much. On Tuesday and Wednesday, the Fed will meet to discuss the economic data that has been printed since it last met and at 2 p.m. on Wednesday, will announce its next decision.

If the Fed continues to increase pressure on the economy by raising rates an additional 0.25% or even 0.5%, fear over the health of the financial sector could return, although many believe the failure of SVB Global SIVB, in particular, may cause the Fed to ease.

In contrast to the 2008 financial crisis, the collapse of Credit Suisse, SVB Global and Signature Bank SBNY aren’t related to the cheap credit and insufficient lending requirements that eventually caused the housing bubble to burst.

So what are the differences between 2008 and 2023 in terms of the health of the financial sector?

The Reasons Behind The Collapse

Credit Suisse’s, SVB and Signature bank collapsed for different reasons than each other and their failures are for different reasons than what caused Washington Mutual, Lehman Brothers and many other institutions to go bankrupt in 2008.

The 2008 financial crisis, and subsequent Great Recession, was due to steeply declining housing price beginning in 2006. By 2007, lenders were holding “trillions of dollars of worthless investments in subprime mortgages,” according to Investopedia.

President Barack Obama passed the Dodd-Frank Act on July 21, 2010 with the intention to prevent what happened in 2008 from ever taking place again.

And then former President Donald Trump rolled some regulations back. Although President Joe Biden recently attributed the collapse of SVB and Signature bank to Trump, those bank, along with Credit Suisse, failed for reason unrelated to mortgages.

• SVB collapsed after the bank was forced to sell some of its investments at a loss after withdrawals increased and deposits lessened amid rising interest rates. The bank also announced a stock offering, which caused the stock to tank, further pressuring the institution. SVB’s bankruptcy is the most comparable to what happened in 2008.
• Signature Bank’s failure was due to the institution’s decision to accept cryptocurrency assets, which plummeted in value over the course of 2022 amid crypto winter.
• Credit Suisse’s failure began in 2021, when the bank lost $5.5 billion following the collapse of hedge fund Archegos Capital Management LP. On March 24, when many other institutions started to liquidate their positions with the hedge fund, Credit Suisse held off and incurred a massive loss, which the bank said at the time led to a “material impact,” according to Reuters.
• Between that date and March 14, when Credit Suisse announced “material weakness” in its financial reporting, the stock plunged over 80%.

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