The implosion of 2 California lenders has investors worried worse is to come: 'There might be some kind of crack in the financial system'
. One is whether they're tremors ahead of an earthquake in the broader financial system.
Christopher Whalen, the chairman of Whalen Global Advisors, a financial consultancy, said Silicon Valley Bank was"just the tip of the iceberg." He told:"I'm not worried about the big guys but a lot of the small guys are going to take a terrible kicking." Veterans of the 2007-08 financial crisis may remember the term"mortgage-backed securities." They are, in simple terms, financial instruments based on bundles of mortgages. In the run-up to the financial crisis, banks bought trillions of dollars' worth of mortgage-backed securities that were based on high-risk mortgages sold to low-income homeowners.
There are parallels with the situation facing banks today. This time the concern for banks isn't risky mortgage-backed securities but the bonds they bought in the wake of the financial crisis., meaning lower-interest bonds bought before 2022 are worth less than they paid for them. Indeed, on Monday, the Federal Deposit Insurance Corporation said US lenders were sitting on about $620 billion of unrealized losses on securities such as low-interest bonds.
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