Most of the finance world is looking to the great financial crisis for parallels to what happened to Silicon Valley Bank, but perhaps a better case study lies back in...the 1980s.
The big picture: The savings and loans crisis. From 1980 to 1994, nearly 1,300 of these smaller, home loan-focused banks failed.
- And they failed mostly because of at least one issue that plagues us today: high inflation that prompted big rate increases by the Fed.
- The
S&Ls were in the mortgage business, and when they made these loans
they held them on their books. As rates rose, those mortgages were worth
less and less — a sort of corollary to the mortgage-backed and
government securities sitting on SVB's books.
Also: Decades ago, the Fed's rate hikes...some risky loans concentrated in the oil sector, as Edward Harrison writes in Bloomberg.
In SVB's case, it was similarly reliant on one sector — tech.
Yes, but: There are differences in the details, of course....
- We've also only seen two banks fail. Not hundreds.
-
- The bottom line: As the kids like to say, history doesn't repeat, but it does rhyme.
