How do Recent Bank Failures Impact Your Portfolio?

Last week, regulators seized Silicon Valley Bank (NASDAQ: SIVB), the nation’s 16th-largest bank. The bank was declared insolvent after it couldn’t satisfy withdrawals by depositors last Thursday and Friday.

How did a recently thriving financial institution get to this point? There were a number of contributing factors:

  • SVB works with a large percentage of tech companies, and activity in the tech sector had dropped off over the past year.
  • The bank had its deposits tied up in low-yielding treasuries, which have dropped in value due to higher rates.
  • SVB tried to raise cash by selling stock. When that didn’t go well, they had to sell treasuries at a loss.
  • Depositors lost confidence in the bank and withdrew their funds, causing the bank to fail.

The FDIC insures deposits up to $250,000, and the majority of SVB customers had more than that deposited in the bank. The U.S. government has said it will waive the deposit cap and all depositors will get their money, allowing tech companies to pay their bills and payrolls.

Regulators also seized New York-based Signature Bank over the weekend. The government plans to make depositors at that bank whole as well.

Are the activities of the last few days a sign of a bigger banking crisis? We don’t think so. Keep in mind that regulators are watching dozens of banks even in normal times. Additional scrutiny is to be expected in light of recent events.

However, markets don’t like negative headlines. The recent bank events led markets to drop significantly last week, and we expect markets to remain rocky this week as the situation unfolds. The latest inflation numbers are also scheduled for release this week, and could add more market drama.

You should know we’re keeping a close eye on these events and how they impact your investments. If you have questions about what’s happening with your accounts, call us at 630.993.8200. We’re here to walk alongside you as we navigate a potentially rough road ahead.

Video Transcript

Hi, Josh Bretl here with FSR Wealth Strategies. And on this Monday afternoon I’m recording this. to communicate a little bit about what’s going on in regards to Silicon Valley Bank. Up until this weekend, I had never heard of Silicon Valley Bank, as I’m sure most of you have not unless you owned a small venture, capital backed, firm in Silicon Valley, then you probably knew who they were.

But, this bank has caused some turmoil in the market as well as, a few other things that have occurred recently. But over the weekend, the regulators went in and they took over Silicon Valley Bank, which happened to be our country’s 16th largest bank. Now, for a size comparison, it’s less than a 10th the size of Chase, so it’s not that big. But still, it plays a major role, in some of our smaller startups, out in California.

So what we’re looking at here is this was an insolvency issue. They, had too much cash and they invested it into long term treasuries. And when, uh, these companies needed that cash, they needed to sell these treasuries in order to get it back.

And with interest rates going up the way they have, they took a huge hit on these treasuries that they had to sell. So the bank had the money, they just took a giant loss. And when their customers saw this loss, they said, “Hey, give me my money back.” And they couldn’t fulfill on all those promises, so that’s when the regulators stepped in.

Now also over the weekend you saw an East Coast bank, Signature Bank, also be taken over for the regulators but for some different reasons here. And one of the questions we’re wondering, as you think back to, you know, the last financial crisis we had, this was, uh, a banking crisis back then.

And are we having that all over again? And I don’t think so. We don’t think so. Our research team we think that the banking industry is actually very well capitalized. But even if this doesn’t, bad news can sometimes, cause some volatility into the market. So as we’re looking into this week, we are looking and seeing what are regulators doing as well as this week we’ll get, we’re gonna get some inflation numbers. We’re gonna get some jobless numbers, as well as next week we go into a Federal Reserve meeting to see what they’re doing with interest rates.

As little as a month ago, we were talking about a quarter point jump coming up here in March, then for the last few weeks we’ve been kind of anticipating a 50 basis point jump. And now we’re going back to 25 basis points as far as, even Goldman Sachs came out today and said maybe a 0% hike.

So who knows where that’s gonna be. But what we do know is stuff like this does lead to volatility. So let me recap this. Silicon Valley Bank, signature bank, anything else that we see right now, is this a major systemic issue? And no, I don’t think this is, I think we have a lot of capital in the system right now, but I do think that those specific institutions had their problems.

Now, what does this mean for your portfolio? It means don’t panic, but we’re gonna see some volatility here. And if we do, this is where the planning comes into play. This is why we do what we do every day with you as we sit down and we make sure that it’s little times like this that you’re gonna be okay.

If you have questions as you go through this, we’re here for you. We’d, be happy to answer any questions you may have. In fact, our whole team today sat at lunch and we talked specifically about Silicon Valley Bank and what it meant for you and your portfolios. So with that, I hope you guys have a wonderful week, and, as always, if we can do anything for you, please let us know.