During 2008 the world weathered a severe financial crisis, the most severe in eight decades. After 15 years of market memory, fears resurfaced as people asked whether the situation might echo the past. Was Silicon Valley Bank a warning sign of another major downturn? The mystery of how finance operates remains a challenge for economists, and definitive answers are elusive.
The core crisis then stemmed from excessive leverage paired with asset inflation. As the real estate bubble burst, investors sought refuge in property markets, wary of losing capital. Public debt levels in the United States, Germany, and Japan rose, complicating debt rollovers and forcing asset sales that pushed prices lower. The deflation of asset values triggered tighter credit, reduced investment, and a slide in GDP and employment.
Today, global debt sits higher than it did in 2008, especially in developing economies and notably in China. China shifted away from large current account surpluses and increased both state and corporate debt. In the United States, companies carry more debt than in 2007, often financed at very low interest rates. Inflation seemed to ease for a time as central banks prioritized growth and financial stability over rapid price gains.
The pandemic further strained the system, disrupting global supply chains and reviving inflation fears. Central banks responded by raising interest rates, trimming balance sheets, halting asset purchases, and allowing maturities to wind down. Risk premiums for corporate and sovereign debt remained near pre-pandemic levels, but the fall of Silicon Valley Bank sent tremors through markets not seen since the 2008 crisis.
technology bubble
The rise in rates squeezed the technology sector, exposing vulnerabilities in what was once a high-flying market. A California bank, heavily tied to tech funding, bore the brunt. It was also a pivotal lender for private equity and numerous crypto ventures. Some regional U.S. institutions and major European players felt the impact as well. Names like Credit Suisse and several German banks faced penalties and scrutiny as markets adjusted.
The failure of Silicon Valley Bank was linked to a rapid expansion of credit alongside an oversized exposure to the tech boom. Rumors about the bank’s downfall suggested heavy investments in long‑duration public debt at low yields, creating capital losses as rates rose. Banks with high debt-to-equity ratios faced the challenge of valuing portfolios at current market prices and sometimes resorted to short selling to cover losses.
tighter regulation
The contrast with 2007 lies in the stronger regulatory framework and the need for higher-quality capital. Central banks now possess more tools to safeguard financial stability, and they have learned lessons from past crises. Yet fear remains a powerful force, capable of triggering cautious behavior. The European Central Bank was observed adjusting its stance, and government yields reflected a market waiting to see how policy would unfold. In Germany, the outlook suggested that rates might stay elevated, with expectations of eventual adjustments in the months ahead.
There is speculation that if the ECB wishes to calm markets, it could pause rate changes and monitor inflation. If stability returns next month and inflation does not retreat, further adjustments may occur. The Federal Reserve could follow a similar path at its upcoming meeting.
Spain presents a notable case, having endured a long period of weak leverage since 2007. Household debt remains high and disposable income has declined. During the previous crisis, Spanish banks funded more with loans than deposits and relied on mortgage-backed bonds to finance operations. When the subprime turmoil hit the U.S. and capital markets froze, lending in Spain slowed, requiring banks to adjust their funding strategies.
Today, Spanish banks hold significantly more deposits than loans, providing a buffer to shield credit, investment, and employment from market volatility. Yet the country faces rising public debt and a stretched risk premium relative to Germany. Analysts suggest policy measures that would reassure markets, including clarifying fiscal plans and pursuing consolidation within a credible stabilization program.
As history shows, restoring investor confidence takes time and steady action. It requires transparent communication, prudent risk management, and a clear plan for sustainable growth.