This month Jason Weaver discusses 2008 banking, 2023 banking and recovery time.
2008 BANKING
In 2008, Banks had a credit problem (with risky loans with very little safe assets)
In 2008, banks had 23 dollars of liabilities for every dollar they had in liquid cash (highly leveraged & illiquid)
2023 BANKING
Today, banks have a higher ratio of assets in cash and Treasury/agency securities
On average, banks have less subprime lending exposure today too
Today, the problem is liquidity and duration (interest rate) risk
Banks have used new deposits to buy Treasury/agency securities when rate were low
Fed raised rates at the quickest % pace of all time (0.08% to 4.57% in 1year, or a 57x increase).
Inverse relationship with rates and bond prices have created unrealized losses for bank balance sheets
RECOVERY TIME
History has shown financial markets have rebounded from market shocks, posting strong long-term gains.
The average loss during a “crisis” event is -16.7%
The average gain 1 year later is +31.3%
In 2008 when Lehman collapsed, the market fell -39.6% in 2 months
o1 Month Later, SPX was up +18.3%
o1 Year Later, SPX was up +48.8%