The US financial and banking system was rocked by the largest bank failure since the 2008 Great Financial Crisis which begs the question if we are on the brink of a new crisis. According to Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, the answer is no.
‘Not the start’ of a financial crisis
McMillan wrote in a post recent bank failures, most notably SVB Financial Group (NASDAQ: SIVB), is “something to keep an eye on”, but is “not the start” of a new financial crisis. The difference this time around the government stepped in “early and stepped in hard.” Granted, market volatility and some pain ahead is likely inevitable, the main takeaway is the government is “willing and able” to support the financial industry.
Unlike in 2008, the government is getting ahead of the problem rather than trying to clean up afterward. That is a very positive sign.
Expect a recession, crypto at risk
Banks as a whole are likely to cut back on their lending activity and risk until they “get their houses in order,” he wrote. This will by default slow economic expansion and pull the markets down. This isn’t necessarily a bad thing as this was the type of activity the Federal Reserve was hoping for in the first place.
Nevertheless, the odds of a recession are now “much more likely” with a “short term” timeline to be expected.
Meanwhile, the bank collapses mostly impacted the crypto and tech space and these sectors are now “even more at risk” than the economy as a whole, McMillan continued. While there will be other bank stocks that would attract attention and are willing to fill the void, one of the biggest enablers of the tech boom “is now gone.”
Expect a bumpy ride, but it’s a ride we will eventually be able to get off of. This story is not over yet, and we don’t fully know how it will end. We do know, however, that we will make it through.
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