Silicon Valley Bank collapses; Which is the worst banking crisis world has seen so far?

Silicon Valley Bank, the US’ 16th-largest bank, failed after depositors hurried to withdraw money this week amid anxiety over the bank’s health. It was the second biggest bank failure in the country’s history after the collapse of Washington Mutual in 2008.

We asked ChatGPT to identify the worst banking crisis and what led to the collapse. Here’s what the bot responded:

There have been several significant banking crises throughout history, but one of the worst in recent times was the Global Financial Crisis of 2008. The crisis was triggered by a combination of factors, including:

The Housing Bubble: Banks lent too much money to homebuyers during the mid-2000s, resulting in a housing bubble. When the bubble burst, housing prices plummeted, leaving many homeowners with negative equity.

Subprime Mortgages: Banks also lent money to people with poor credit histories, known as subprime borrowers, who were more likely to default on their mortgages.

Securitisation: Banks bundled these subprime mortgages together and sold them as mortgage-backed securities (MBS) to investors. When homeowners started defaulting on their mortgages, the value of these securities plummeted.

Leverage: Banks used high levels of leverage, meaning they borrowed a lot of money to invest in these mortgage-backed securities, amplifying the losses when the housing market collapsed.

Credit Default Swaps: Banks also used credit default swaps (CDS) to insure against the default of these mortgage-backed securities. However, when too many people defaulted on their mortgages, the CDS market couldn’t handle the volume of claims, causing many financial institutions to suffer significant losses.

The combination of these factors led to a systemic crisis that affected the global financial system. Many banks and financial institutions suffered losses, and some went bankrupt, causing a significant impact on the world economy. The crisis led to a global recession and resulted in widespread unemployment and economic hardship for many people.