Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: Thijs Knaap, chief economist at APG, on whether government action after the collapse of Silicon Valley Bank (SVB) proves that lessons were learned from the 2008 bank crisis.
Just under 15 years ago, the US bank Lehman Brothers collapsed. It turned out to be the harbinger of the biggest financial crisis since the 1930s. In the Netherlands, ABN Amro, Fortis and insurer ASR had to be rescued with taxpayer money. According to Knaap, the big mistake the U.S. government made in 2008 was letting Lehman go bankrupt. Now that another bank has failed, the question is whether anything has been learned from the 2008 situation. That appears to be partly the case, although not all the lessons have been learned.
There are both similarities and differences compared to that time, Knaap says. “Interest rates are rising sharply. This means that fixed-interest securities that banks have on their balance sheets, such as bonds, are falling in value. After all, new bonds with higher interest rates are available. That sounds like a parallel to 2008: the assets that a bank has on its balance sheet are declining in value. Fifteen years ago, it was junk mortgages whose value plummeted; now it’s U.S. government bonds. Customers then become afraid that their assets are going up in smoke and want to get them out of the bank quickly: the famous bank run."
Among the differences, it is especially notable that the drop in value on banks’ balance sheets is less severe than in 2008. “Then it suddenly became clear that banks had sold a lot of mortgages that had all lost their value. And it was unclear who had sold the mortgages to whom and what the exposure to potential losses was. Now that is less of an issue. We know which parties bought the treasuries (U.S. government bonds, ed.) and how they should to deal with them. That makes it less of an issue. Also important is that after the collapse of the SVB, President Biden immediately made it clear that every customer would get their money back. That was not the case after Lehman’s fall. If all goes well, the ensuing panic is now dissipating fairly quickly. Biden’s reaction shows that lessons were learned from 2008, although the potential damage was so great then that it was harder for the U.S. government to issue a guarantee than in the current situation.”