|While we strongly advocate for a “better safe” practice in managing bank deposit accounts, it is also important to understand that the coordinated intervention on Sunday night is designed to allay the concerns of all depositors well beyond Silicon Valley Bank and Signature. The Federal Reserve’s statement (view here) is unequivocal about their intention to ensure that all traditional bank deposits are protected and accessible for depositors, which President Biden reiterated in comments Monday morning. Of course, shareholders, bondholders and holders of other liabilities are a different story, and the long-term implications of the SVB and Signature collapses are hard to predict at this time.|
In all likelihood, there will be a flurry of bank consolidations in the near term as the specialty and regional banks that are under the most pressure may be compelled to sell to larger, more diverse institutions. It is also highly likely that bank regulations will evolve to mitigate the risk of a recurrence of the SVB issue. SVB was an innovative lender and facilitated capital flows in one of the most entrepreneurial and value-creating corners of the global economy, but what we don’t know yet is whether that kind of institution was “need-to-have” or “good-to-have” for the high-velocity tech, venture, etc. community.
Banks will likely have less ability to be creative and flexible after the events of the last few days, but the risk to depositors, in general, may be lower going forward as well. This is not a repeat of the Great Financial Crisis, and SVB was not necessarily a bad actor in need of punishment, but rather a confluence of circumstances exposed an unforeseen weakness, and they were flying closest to the sun. It is important to note that SVB was actually pretty unique in the banking sector, as their deposit base and their business was highly concentrated at the same time that they were relatively highly leveraged – a riskier combination than most of their industry peers (see the JPM chart below).
|Regardless of how the next few days, weeks and months unfold in the US banking sector, the Fed (rightly) put a large flag in the sand regarding the safety of traditional US bank deposits. That said, we still believe that maintaining deposits below the $250,000 threshold/account is prudent at any bank. It is better to know with certainty that your deposit is explicitly insured than to wait for the Fed to reconfirm it during some future period of extreme stress.|
If you have any questions about these recent events and their potential impacts on your finances, please feel free to reach out to me or any member of the Delegate team.