March 2023 was a month the global banking industry will not soon forget, as many feared that it potentially signaled the start of a new banking crisis. Over the course of three days in March, two U.S. banks collapsed, marking the first
. since 2021. Silicon Valley Bank (SVB), which was the 16th largest bank in the U.S., collapsed on the 10th of March. The assets lost in its failure amounted to roughly 209 billion U.S. dollars, making it the third
. Signature Bank went under two days later, marking the fourth largest U.S. bank failure. The loss of assets upon the failure of these banks was close to the total amount of assets lost during the global financial crisis in 2008, when 25 U.S. banks collapsed. Though no other bank collapsed in March 2023, confidence in the banking industry crumbled, leading to the drastic
of several regional U.S. banks, and the
. Less than two months after the collapse of SVB and Signature Bank, First Republic Bank went under, marking the second largest bank failure in U.S. history.
Banking crisis makes its way to Europe
Markets were thrown into turmoil by the failure of SVB. Little more than a week after the collapse of Silicon Valley Bank, the banking crisis made its way across the Atlantic. After years of mismanagement and several scandals, Credit Suisse, Switzerland’s second largest bank, was bought by its longtime rival, UBS, as its drastically dropping
market capitalization and
share price crushed confidence in the bank. As a consequence of the troubling signs of a banking crisis, numerous other European banks experienced a sharp drop in their stock prices. In the middle of March 2023,
share prices of the largest European banks were on average more than 15 percent lower than at the beginning of the month.
What distinguishes the situation in 2023 from the banking crisis in 2008?
While the events of March 2023 may be concerning, the situation is vastly different from that of the banking crisis in 2008. 2008 was characterized by lightly regulated or unregulated corners of the financial system, with highly complex financial products. Requirements for banks to report their key financial indicators were much less strict, leading to a non-transparent situation in the banks’ balance sheets. In addition, due to the lack of regulation, banks had significantly lower equity and liquidity levels. In 2023, on the other hand, the banking industry is much more prepared for a crisis, primarily thanks to Basel III, the international agreement in response to the 2007-2009 financial crisis, that set a number of
capital and liquidity requirements for banks. That is why the
common equity tier 1 (CET1) ratio and the liquidity coverage ratio (LCR) of banks increased sharply after the crisis. In Europe, for instance, even the
worst performing banks’ CET1 ratio is higher than 4.5 percent.
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