How Likely Is a Lehman-Like Crisis?

Nicholas Economides

By Nicholas Economides

Do the almost simultaneous bank crises on the opposite sides of the Atlantic imply a disaster like the Lehman Brothers collapse?

Let’s start from the United States. Banking crises start suddenly but they typically have long-term causes. On March 7, Silicon Valley Bank (SVB), a midsized regional US bank with $200 billion in deposits, announced that it had lost about $2 billion by selling early long-term treasury bonds and that it had hired Goldman Sachs to manage a new share offering to cover the damage. This announcement did not seem disturbing, but it was clumsy in that it preceded rather than followed the new share offering.

Many startups and venture capitalists (VCs) were banking at SVB. In the last six months, many startups and VCs had withdrawn significant amounts from SVB because of difficulties in the sector. To cover the withdrawals, SVB sold long-term treasuries at a loss of about $2 billion. On March 8, at a group chat of hundreds of executives of startups and VCs, the issue of the relative weakness of SVB was discussed, and some “leaders” in the sector said that “they counsel friendly companies to withdraw their deposits from SVB.”

Read the full eKathimerini article.

Nicholas Economides is a Professor of Economics at NYU Stern School of Business.