The collapse of Silicon Valley Bank (SVB)one of the most important financial entities 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 that occurred in 2008 could occur again. 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 make the global markets 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
This type of high risk loans, popularly known as junk loans, they were massively granted by banks, finally causing a collapse in real estate assets. Clients began to contract this type of mortgage after the good prospects of the market, by 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 not all the requested documentation had been completed, Delays in their credit history were allowed and it was even accepted that a previous mortgage had been intervened, as long as this process had occurred in the most extreme cases. That is to say, were incredibly lax award criteria,” explains Luis Fernando Utrera, professor of the Master 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 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 This was the case on September 15, 2008, when the investment entity Lehman Brothers filed for bankruptcy, the fourth largest investment bank in the United States, causing the largest fall in the US economy since the ‘crash of ’29’. 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 in the financial portal iAhorro. 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. Likewise, 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 Government of the United States himself, Joe Biden, stated that “Americans have to trust the banking and financial system. They can breathe easy because the companies will be able to pay the 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”. consists “no 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 ones And they’re not as involved in the business of tech companies.”