Comparisons to the 2008 banking crisis have become a little harder to ignore in recent days
Shares in UBS plunged early on March 20, 2023 as a deal to take over its troubled Swiss rival Credit Suisse for $3.25 billion failed to calm stock market nerves.teve Chiavarone doesn’t want to scare anyone, but what he remembers most from the last banking crisis was how sure most people were that it wouldn’t happen.
Not that this episode will match the magnitude of that one. While odds of a recession are way up, authorities are better equipped today to deal with stress in the financial system, and the largest banks are stronger than they were then.
In markets, bets on crisis that have been busting bears for years are in scant evidence today. The Nasdaq 100 just had its best week since November, credit spreads are about a third of their level in 2008 and the dollar is falling. And while Treasury volatility is the highest since 2008, crushing quants and other big managers, it wasn’t enough to keep hedge funds from snapping up single stocks last week at the fastest pace since January 2021, according to a trading note from Morgan Stanley.
A difference between 2008 and now is inflation, which threatens to complicate the Federal Reserve’s response should things mushroom. While bond traders wasted little time pricing out future interest rate hikes in the aftermath of Silicon Valley Bank’s collapse, consumer costs continue to rise at more than twice the pace central banks have targeted.
Sidial said he’s already worrying about finding prime brokers who won’t collapse in unison should contagion spread. “Forget US equity markets, the whole world is connected to the banking system. If that hits, everything’s going with it. You can destroy tech, you can destroy everything else, but banking is the one thing where if that goes down, there’s massive repercussions.”
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