Bank Crisis Survivors Remember How Fast the Dominoes Can Fall

Steve Chiavarone doesn’t want to scare anyone, but what he remembers most from the last banking crisis was how sure most people were that it wouldn’t happen.

At his New York office in early 2008, Wall Street’s best and brightest — “strategist after strategist after strategist after strategist,” recalls Chiavarone, now senior portfolio manager at Federated Hermes — paraded through to say that even if a recession hit, it’d be shallow and short.

That’s not, of course, how things played out. A few months later, “you’d go to your office every day and something that you never thought would happen would happen,” he said.

All sorts of crises have been predicted by financial Cassandras in the aftermath of 2008. In reality, they’re exceedingly rare in markets. And yet, with three US banks down, a fourth teetering and the government-brokered acquisition of a fifth — and much larger — institution in Europe, the comparisons to that episode have become a little harder to ignore.

Not that this episode will match the magnitude of that one. While odds of a recession are way up, authorities are better equipped today to deal with stress in the financial system, and the largest banks are stronger than they were then.

Reasons for Wariness

But for the current class of investing professionals who seem largely unperturbed by recent events — desensitized perhaps by the years of false warnings — there are important messages to be gleaned from the first-hand accounts of veterans, like Chiavarone, of that crisis. His biggest: Things can unfold in ways that seemed inconceivable just weeks earlier. “It’s one of the reasons I’ve been as cautious as I have,” he said.