How bad are the current market jitters?

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Fourteen years since the global financial crisis ended, fears of a fresh crisis are in the air. According to Google, searches for “financial crisis” in America have risen four-fold over the past week to a ten-year high. Silicon Valley Bank (svb), a mid-sized lender based in California, failed on March 10th after depositors withdrew $42bn of cash—one quarter of its total—in one day. Two other mid-sized American banks have failed, too. The ripples have been felt in Europe. Credit Suisse, a 167-year-old institution with $400bn in deposits, was swallowed whole by UBS, its Swiss rival, on March 19th.

Bank shares in Europe are down by 14% over the past month, and in America they are 20% lower. The failure of svb, which had $200bn in assets, makes this year the worst year for bank failures by asset size in America since the global financial crisis, according to data from the Federal Deposit Insurance Corporation, which insures depositors against losses. But the two crises are not comparable in scale. Whereas only three banks have failed this year, 414 lenders failed between 2008 and 2012 because they were swamped by bad debt from America’s subprime-mortgage crisis.

So far this time, in contrast with 15 years ago, the broader stockmarket has been relatively unruffled by the turmoil within banking. The vix “fear” index measures the volatility of the S&P 500, America’s leading share index, which rises as investors become jittery. A value above 30 is seen as bad news. The index peaked at 80 in September 2008 after Lehman Brothers, an investment bank, collapsed. Today the vix is at a relatively benign 22, which suggests that investors are so far keeping calm (see right-hand chart). The S&P 500 is up by 3% over the past week.

One further explanation for this could be expectations for what the Federal Reserve will do. It has already taken several steps to shore up the stability of the financial system, including through the introduction of a scheme that provides emergency lending to banks secured against their bond holdings. But investors are also now expecting that the Fed will raise interest rates by less than they had previously thought (see inset chart). Markets were pricing in between 0.25- and a 0.5-percentage-point rise, but they are now split between expecting a 0.25-point rate rise and no increase at all. Those expectations of looser monetary policy may, all else equal, be keeping markets buoyant.