During the economic success of the roaring 1920s, several people bought stocks on borrowed money. When the stock market crashed in Oct 1929, most cou

Bank failures come in waves.

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2023-03-18 00:30:03

During the economic success of the roaring 1920s, several people bought stocks on borrowed money. When the stock market crashed in Oct 1929, most couldn't afford to pay back their loans.

They turned to withdraw money from their banks, triggering bank runs and a steep economic collapse. More than 9000 banks failed.

Savings and Loan institutions (S&Ls) took customer deposits on floating rates, and issued mortgages at fixed rates. When interest rates rose, their costs rose sharply, but revenues stayed the same. 2943 S&Ls failed starting in 1980.

But it turned out that housing was oversupplied. Home prices began to fall in 2006, and MBS lost value. During the economic contagion, and the resulting Global Financial Crisis (2008), 465 banks failed.

The recent failure of Silicon Valley Bank has raised fears of a new banking crisis. One way to look at SVB's failure is: SVB assumed that interest rates won't rise.