Many fear a repeat of 2008 given the recent collapse of banks in the United States and the intervention that happened this week by the Swiss government to facilitate the takeover of banking giant Credit Suisse.
Dr. James R. Thompson, associate professor in the School of Accounting and Finance and co-director of the University of Waterloo’s Computing and Financial Management program, says that while the two crises are not the same, their outcomes could be.
In 2008, some banks got in trouble because of shoddy collateral, like mortgage-backed securities, which at the time no one knew much about and were very opaque,” Thompson says. “Now, the collateral that’s being used for loans tend to be fairly reasonable. More of this collateral in the US are government securities, which are easy to value.”
Learn more about the current banking crisis: Banking crisis echoes 2008 but with ‘marked differences’