Breaking News
Investing Pro 0
👀 Bezos, Buffett & Berkowitz: What's in Their Portfolios? Unlock Data

2023 Isn't 2008: Explained
2023 Isn't 2008: Explained
By Francesco Casarella/   |  Mar 14, 2023 12:36
Saved. See Saved Items.
This article has already been saved in your Saved Items
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
  • SVB failed due to higher interest rates and a liquidity problem
  • Despite the failure, today's situation is different from 2008, with lower bank leverage, safer investments, and Fed support
  • This, in turn, ensures that one bank's crisis does not become a systemic risk

In today's analysis, as we can guess from the title, I'll try to explain in simple terms (as much as possible) why the two situations (the subprime crisis and Lehman bankruptcy in 2008 and SVB Financial Group's current situation) are very different.

Why Did SVB Fail?

During the post-pandemic period (late 2020 and 2021 in market terms), liquidity flowed like wildfire, supported by government support programs and extremely accommodative central banks. Asset prices tend to inflate (and vice versa) when there is so much liquidity.

So, a bank like SVB, which had Silicon Valley startups as its main customers, received a flood of money, mainly deposited by its customers. This money represents a liability for the bank (it is the customers' money). What did the bank do with this money?

It took the money and invested it in US government bonds, one of the safest investments in the world. Since it was also a time of extremely low-interest rates, the customers received zero percent interest by depositing their money in the bank.

In contrast, the SVB, by investing this money precisely in US government bonds, could count on a return of more than 1 percent.

So, what was the problem? Starting in 2022, the US Federal Reserve (the Fed) began one of the fastest and strongest interest rate hikes ever (to fight inflation), going from 0.25% to 4.75% in just over a year.

Fed Interest Rate
Fed Interest Rate

As an investor, if I have a United States 10-Year Treasury bond in my portfolio, purchased in 2021 that was yielding, say, 1.5 percent today (after this rate hike), bonds with the same maturity and characteristics are yielding more than twice as much, the value of my investment will have to decline in price to match the market (see below).

US 10-Year Daily Chart
US 10-Year Daily Chart

This is exactly what happened to SVB's investments (the well-known assets), which fell by 20-30%.

Now, in a normal situation, this would be nothing strange since these government bonds (assets with "almost" no risk) are classified on the bank's balance sheets as "held to maturity."

This means that once purchased, and if prices fall, no real losses (caused precisely by the fall in prices) show up on the balance sheets because it is assumed that the bank will hold this investment until maturity (and at maturity, you know that the value is always 100).

So, what was the fuse that blew the whole thing up? As always, the liquidity problem...

We went from a situation where mountains of money flowed around at almost no cost to one where money is scarce and expensive. Many startups, especially those that weren't making money, needed to raise money in this new environment, and what did they do? Simple, they went to the bank to get it.

And here comes another problem, that of fractional reserve. When a bank receives a deposit of $100, it is required by law to keep only a small fraction of that deposit on hand.

Right now, banks have about $3 trillion in cash versus $17.6 trillion in deposits. But most of that cash is just a webpage with an amount written on it. In fact, only about $100 billion (0.1 trillion) is held by banks in the form of physical notes in vaults and ATMs. Thus, the $17.6 trillion in deposits is supported by only $3 trillion in cash, of which perhaps $0.1 trillion is physical cash. The rest is backed by less liquid securities and loans.

So, when people rush to the bank to get their money back, the bank has to sell its investments, as did the SVB, which sold many of its government bonds (at a loss of about $2B). Since it didn't have much liquidity left, it tried to raise more money, which caused a bank run, and as the demand for cash increased even more, it all blew up.

Why 2023 Is Not 2008

It isn't for several reasons...

In 2008, banks had $23 of deposit liabilities for every $1 of liquidity, an absurd level of leverage. Today, in light of that financial tragedy, the ratio is 5x or 6x.

Back in 2008, banks as a whole also had a credit problem, and they were not investing in US Treasuries (as they are now), but (to quote a famous movie) in "dog shit wrapped in cat shit."

This chart shows banks' holdings of cash and Treasuries (the safest assets in terms of credit risk) as a percentage of total bank assets:

Bank and Cash Treasuries as a % of Bank Assets
Bank and Cash Treasuries as a % of Bank Assets

When you put it all together and consider the timely intervention of the Fed to provide liquidity to the banks when needed, the situation is very different. Yesterday, for example, I made initial entries in stocks such as Credem and BPER, which are good companies with little to do with small US banks.

At these prices, good buying opportunities have been created (and I have prepared further entries in the event of a further decline).


Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, consultation, or recommendation to invest and, as such, is not intended to induce the purchase of any assets. I would like to remind you that any type of investment is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

2023 Isn't 2008: Explained

Related Articles

Alfonso Peccatiello
Will the U.S. Default? By Alfonso Peccatiello - May 23, 2023

The US is dangerously close to triggering its debt ceiling limit, yet markets seem very relaxed. The 2011 episode shows us how political incentive schemes can instead drag...

2023 Isn't 2008: Explained

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email