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Banking Sector Update

Banking Sector Update

March 16, 2023

Over the weekend there was the news that SVB (Silicon Valley Bank) had failed. By Monday morning, two other banks had also failed. While these banks that failed were what are called "regional banks" and if being honest, most of us had never even heard of them before the collapse.

With that said, what you are not going to hear on the news is that these were two of the largest bank failures of our time.

As an aside, I was part of the largest bank failure in history as I started my financial career with WAMU back in 1999. I have seen this firsthand from the trenches.

The main reason for the collapse of SVB was that they failed to manage their own risk (they did not have a Head of Risk Management for the past 9 months) and they heavily invested their client's cash deposits into long-term treasuries at the same time that the federal reserve not only was telling everyone it would be raising rates but actually started to raise rates. 

A quick investment lesson about bonds...when the price of bonds goes up the rate goes down, when the rates go up (feds were raising rates) the price of bonds goes down. Now, if you hold onto your bond until it matures, just like a CD, you will get back all of your money plus the interest (not guaranteed as there can be certain instances of default but won't get into all of those nuisances at this time).

The problem for SVB was that some depositors wanted to withdraw their money and the bank did not have this on hand, so they had to liquidate/sell these 10-year and 30-year treasuries that the majority of the money was held in, and had to sell it at a deep discount which resulted in a $2B (billion) dollar loss for the bank.

Once news of this was out, other customers panicked and you had what's called a classic "run on the bank." (If not familiar with what a run on a bank is, I encourage you to watch It's A Wonderful Life over the weekend...classic scene towards the end with a bank run). Depositors went in to withdraw $40 Billion from Silicon Valley Bank when news broke and low and behold, they did not have this money to give their customers and were shut down and taken over by the Federal Reserve.

Now to the $250,000 question that many are asking.....

The short answer is yes, your money is "SAFE" due to the FDIC insurance limit of $250,000.

The longer complicated issue is that we need to define and understand what we mean by "safe." Every bank does insure depositors up to $250,000 per bank and per title.Not per account. In other words, if I have a checking account in my name with $250K and another savings account with $250K, then I would be over the limit of $250,000, if these were at the same bank. But, if I had a checking account in the name of our family trust with $250K and a savings account in just my name with $250K and another account in just my wife's name with $250K, then all of these accounts are protected.

Hope that makes sense.

With that said, President Biden did make it clear in his statement early Monday morning, the government would be insuring ALL deposits in these banks failures that just happened, which includes ALL amounts above and beyond the $250,000 insurance limit. Some of these accounts were in the hundreds of millions of dollars above the insurance limit.

In essence, yes this is a "bank bailout."

"So if you are asking is my money safe in the bank?" If by safe you mean will I lose the money that I have in my accounts, according to Biden, NO! You will not lose any money in the bank, even above the $250K limit (although I would highly recommend anyone stay within the limit of $250,000).

But that does not mean or guarantee that you would have "access" to your money if and when you need it. For some of us that can recall during the 2008 housing crisis, I personally experienced and saw people that had money with Indymac bank, it took them over a year to get back their deposits. Did they "lose" their money? No, they got back every dollar, just had to wait a year.

Now with all of that said, here is where I am going to offer what is just my own personal opinion of what is to come.

For those of you that have had the boring pleasure of sitting through one of my hour-long webinars over the past four years where I explain how the banking system works, how the central bank functions, why we have inflation, and most importantly if you were taking notes and not asleep during my presentation, I have been warning and screaming from the rooftops for five years now that if people understood how the banking system works and how the banks make money, and most importantly since Nixon took us off the Gold Standard in 1971, I have warned that ALL BANKS, are completely insolvent and on the verge of a global collapse never before seen that will make 2008 crash pale in comparison.

Now that I have your attention.....

I am not sending this information to cause fear and panic, but rather to prepare and protect you and your loved ones that I do believe that these three recent bank failures are just the tip of the iceberg and the first of many more banks that are going to fail over the next days, weeks and months that could cause a major "run on the banks" globally.

Let me reiterate, that none of our clients have any direct exposure at this time to any of the banking or financial stocks or sectors and have been avoiding the financial sector since the federal reserve started raising interest rates last year.

The point here, is not to cause undo stress or fear, but to let you know that we are and have been preparing for this for the past five years and will continue to update, educate, and prepare our clients as events unfold and are prepared to react accordingly.

I pray you find this helpful. 

Anyone else looking forward to Spring?