The US financial system implored for a respite when the recent banking crisis triggered by bank collapses, besmirched global market conditions and people began to mistrust investing in 2023. Billionaire Howard Marks’ investor advice for folks who chimed into the instability debates, reassured people’s dread of key resemblances between the 2008’s global financial crisis and the 2023’s banking crisis, as disparate.
Headlined by the collapse of SVB and Signature Bank, the effect of the banking crisis rippled through other institutions such as First Republic Bank (which initially tanked even after 11 of the biggest US banks lent a lifeline of $30 billion) and Credit Suisse’s involuntary sale to UBS.
Investors were concerned about a pattern of contagion and began to draw parallels to the perilous times of 15 years ago, from which recovery felt prolonged and never-ending. But, the dust settled when regulators stepped in, dyked depositors and refuted the dubiety of a few black sheep lenders impacting the economy as severely as 2008.
“I think the similarities between 2008 and 2023 are limited to the sheer fact that in both instances, problems existed at a few financial institutions.”
Debt asset management company Oaktree Capital Management’s co-founder, billionaire Howard Marks too debunked the mythical worries and forked out investment insights for the similarities between the subprime mortgage 2008 and 2023 financial crisis, being limited.
Howard Marks Banking Crisis Differences: 2023 VS 2008
A stringent economic crisis analysis of the present global market conditions abetted Marks’ investment insights to settle down the panicked and perturbed depositors and investors.
Howard Marks’ investment advice underscored four stark banking crisis differences between the 2023 and the 2008 financial crashes.
2008’s Mortgage Market’s ‘Insanity’
Billionaire Marks explicated one of the main causes of the 2008’s Global Financial Crisis (GFC) as a surfeit of bad debt, taking shape in the form of mortgage-backed securities, which became heaps of subprime home loans for investors to buy.
Leading up to residential mortgages, investors and financial institutions started experiencing bouts of ‘temporary insanity’ because the money was being loaned to unqualified borrowers, which was in turn fused with good loans to fabricate investable mortgage-backed securities. This was utilized as leverage to boost returns on risky assets.
“There are things that have been overhyped or short on substance – but they’re certainly not held on the balance sheets of America’s key financial institutions in amounts that could endanger our financial system.”
Marks’ first banking crisis difference outlined that bad mortgages were not the cause of Silicon Valley Bank’s problems, instead were by an uninsured depositor base whilst omitting the impact of rising interest rates.
State-Of-The-Art Regulations For The New Age
Another investment insight from Howard Marks points out the efficient rebuttal of regulators to the recent instability. The regulators managed to step in to stop depositors and prevent contagion by injecting liquidity.
“I find it hard to believe that SVB or its like can set off a chain reaction sufficient to trigger an irreversible financial crisis.”
The bandwidth for reserve requirements increased after the GFC, which cushioned even minor falls of major US banks today, by virtue of well-capitalization, significant liquidity, and strong balance sheets.
Albeit, Marks interposed that the GFC shut down 465 banks in the US and left millions unemployed on the streets, the SVB collapse and other contemporaries could dilate the existing wariness amongst investors and lenders and also lead to credit tightening.
Special Case Problem Banks
The analysis of the economic crisis triggered the certitude that the 2008’s GFC discredited legendary financial institutions like Lehman Brothers and Bear Stearns, in contrast to the banking instability of 2023 owed to ‘special case’ problematic banks.
Marks’ banking crisis differences cited an instance of SVB’s bank run being hinged on the risk of its uninsured depositors, largely in the startup space. SVB’s management also vaingloriously risked vesting bonds with longer maturities after the surge in deposits in the pandemic. The hike in interest rates left the lenders with unrealized loan losses.
The Issues Of Magnitude
SVB Collapse and Signature Bank’s failure was dubbed the second-and-third largest bank failure in US History but Howard Marks’ investment advice cited that the scale and magnitude of the failures were not analogous to that of GFC’s perils. The banks that went bust in the GFC were systemically important but SVB’s regional and industry-targeted depositor base could not reach that same pinnacle.
The largest bank failure in US history is accredited to Washington Mutual (WaMU) but SVB is just two-thirds of its size.
“The financial sector has expanded meaningfully in the last 15 years. WaMu’s $307 billion of assets in 2008 gains much more significance than SVB’s $209 billion today.”
Marks’ investment advice finally accentuated that the GFC had affected household names and jeopardized threats to even bigger banks before the government stepped in but SVB’s collapse doesn’t pose the same risk.
