It has been a wild weekend, to say the least. We started Friday without any new bank failures and ended Sunday night with the second and third-largest bank failures in US history. That is enough to rattle anyone’s confidence in the system.
There is a lot to unpack with this story. Having said that, I want to make sure you put all of this in perspective. First, you have to know that the truth is buried somewhere in the “Government Spin Cycle.” They want you to believe everything is okay and to go back to what you were doing previously before you heard about the bank failures. It reminds me of the violin players on the Titanic. They played their violins as if there was no care in the world. Meanwhile, the ship was sinking after hitting the iceberg. “All is well,” said one musician to another.” All is definitely not well.
I want to stay global with this blog and resist overwhelming you with information. There are two important points to make. The majority of banks are in better financial shape than Silicon Valley Bank and Signature Bank in New York. Keep in mind that banks went through huge reform following the financial crisis in ‘08. Having said that, I can’t speak to Signature’s financial health because of the unusual lack of information in the media. This is about the extent I saw on Signature’s collapse.
"Signature board member Barney Frank, a former congressman who helped design new financial regulations after the 2008 financial crisis, ultimately blamed SVB for its collapse. 'It was an SVB-generated panic,' he told The Wall Street Journal. 'We were fine until the last couple of hours on Friday.'"
Well, Barney. Once a politician, always a politician. It was Silicon Bank’s fault that Signature failed. If you are going to come up with a ridiculous reason such as that, please at least make it believable.
However, Silicon Valley Bank specialized in venture capital groups and start-up technology companies. There was a layer of risk present that normally isn’t present in a typical bank. Yes, it could be viewed as an isolated event. However, there probably are a number of banks that are in the same financial shape. I don’t think by any stretch that this is one and done and over with.
Silicon Valley Bank suffered from losses that I think we are going to see with most banks. With escalating interest rates, I have been talking about the huge risk in the bond markets for a while now. It all comes down to bonds. Banks could incur big losses because of bonds. There are many banks that are carrying huge losses in their bond portfolios. That is not a big deal as long as they don’t have to sell them. Banks can carry those bonds at their original price as they hold them. Unfortunately, there are sometimes instances in which banks are forced to sell those bonds and recognize those losses. Banks were not ready for the impact of higher rates. The extent of this bond risk is unknown. However, banks that have to realize bond losses could have unexpected problems.
So, the answer to the question posed in the title is “no”. Don’t feel like you need to move money because of what is happening. Keep all of this in perspective and make sure you are confident that you are in a sound bank. That is the confidence you should have regardless of whether or not we are in this environment. Further, make sure you are within FDIC limits of insurance-covered bank losses. Most importantly, resist getting caught up in the emotion and make decisions with a clear understanding of what is really happening.
If you have further questions for Bob, please visit the Ask Bob page on the website and Bob will get back to you.