The mid-March 2023 collapse of Silicon Valley Bank and Signature Bank led to a great deal of volatility in the financial markets, generating concerns and uncertainty about how this might impact the overall U.S. economy. Fifteen years after the failed banks that helped spur the Great Financial Crisis, experts tell us there are differences between then and now. Certainly there are worries about empty office buildings and upcoming commercial real estate debt maturities; however, when SVB Bank and Signature Bank failed, Federal Reserve & FDIC moved quickly to prevent any potential contagion to other financial institutions.
Things were more financially problematic during 2008 compared with what’s happening today – many attribute GFC lenders overindulging in derivatives & subprime market which caused housing bubble burst; whereas our current crisis is due to combination of COVID-19 consequences plus run-up in interest rates – more akin confidence crisis that will pass according Tower Capital Principal Adam Finkel: “The situation is expected to calm down, stabilize & reveal a market that’s fundamentally better than previously.” Banks set aside more capital for reserves than before GFC while requiring equity when issuing loans but tightened lending standards so borrowers sought financing from sources not prevalent late 2000s such as bridge lenders who discovered debt capital funding unavailable elsewhere due ultra low interest rate environment disappearing says CEO Red Capital Holdings Gary Bechtel: “It will require time for capital markets adjust determine what feels comfortable doing.”
Though banks aren’t lending much as three years ago they still issue loans – mid size most active Q1 2023 even with stepping away hype big banks didn’t completely shut down loan production yet biggest area concern April end year new credit extended category per Finkel “borrowers hard pressed get loans unless willing accept low leverage higher rates stringent standards” concludes Gottleib GottsLaw LLC founder “GFC felt self inflicted current situation lenders learned lessons resulting equity tougher underwriting standards” no 2008 scenario here!
