The collapse of Silicon Valley Bank (SVB) , one of the most important financial institutions in the United States and internationally, has caused panic in the financial and stock markets due to the fear that a global financial crisis like the one could occur again. occurred in 2008. The company was intervened last Friday by the Federal Deposit Insurance Corporation (CFSD) due to doubts about its liquidity and the main concern now is that a contagion effect could be produced that would cause global markets to rumble. In the case of Spain, the shares of the main banks plummeted on Monday, although on Tuesday they were already showing signs of recovery, HelpMyCash experts explain. This same Wednesday, the Spanish stock market has once again suffered from the global financial tsunami triggered by the fall of SVB.
After the fall of this entity, the main financial markets began to show losses. But how did the 2008 crisis start? Is there a risk that it could happen again after the fall of SVB? The outbreak of the global financial crisis began to take shape in 2006 after the collapse of the housing bubble in the United States due to the crisis of the well-known ‘subprime’ mortgages.
How the mortgage crisis broke out
These types of high-risk loans, popularly known as junk loans, were granted en masse by banks, ultimately causing a collapse in real estate assets. Clients began to take out this type of mortgage after the good market prospects, due to the famous ‘construction boom’, and at attractive prices. However, these mortgages were granted to high-risk clients to pay off the debt, in exchange for charging higher interest rates to offset the risk of default.
“When granting a subprime mortgage, for example, it was accepted that all the documentation requested had not been completed, delays in their credit history were allowed and it was even accepted that a previous mortgage had been intervened, as long as and when that process would have occurred in the most extreme cases. That is, they were incredibly lax criteria for granting it,” explains Luis Fernando Utrera, professor of the Master’s in Stock Market and Financial Markets at the Institute of Stock Market Studies (IEB) .
The big problem began when the real estate market in the United States crashed, home prices plummeted and interest rates began to rise and, consequently, defaults and a liquidity crisis began. A collapse that caused a domino effect, also affecting financial institutions that, in turn, had lent money to banks.
The bankruptcy of Lehman Brothers and the domino effect
This whole bubble was about to burst, and so it was on September 15, 2008, when the investment bank Lehman Brothers, the fourth largest investment bank in the United States, went bankrupt, causing the biggest drop in the US economy since the ’29 crash’. The US government refused to intervene and the entity went bankrupt ” leaving a hole of more than 639,000 million dollars (545,000 million euros), the largest debt in corporate history,” they indicated on the iAhorro financial portal . The consequences of the collapse in the US economy spread rapidly to Europe and the rest of the world, causing a global crisis.
Before this, Freddie Mac and Fannie Mae, the two most important mortgage companies in the United States, had to be rescued by the Government and the Federal Reserve. Also, before the Lehman Brothers collapse, the investment bank Bear Stearns, which was dedicated to securitization and active securities such as mortgages, had to be acquired by JP Morgan Chase for only two dollars per share. This financial collapse spread to the rest of the markets around the world.
Can it happen again? What is the risk in Spain?
Back to the current situation after the fall of Silicon Valley Bank, experts say that it is not the same situation. The president of the United States Government, Joe Biden, stated that “Americans have to trust the banking and financial system. They can breathe easy because companies will be able to pay their bills and their employees.” For her part, the Minister of Economy, Nadia Calviño, has assured that the Spanish financial system is strong and the situation is “healthy”. Likewise, she is not aware of “any concrete exposure to the banks that are being affected right now . “
“The only relationship between the Spanish banking system and SVB is the fear that savers may have,” say HelpMyCash experts. The case of Silicon Valley Bank is very particular, since “it had a very homogeneous customer base and its situation depended a lot on the future of this industry.” On the other hand, experts from the Spanish Institute of Analysts indicate that ” the banking model followed by European banks is different from that of North American banks and they are not as involved in the business of technology companies.”