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Columns | Go Far With Kovar

Do You Have Bank Failure Fright?

by Taylor Kovar

April 4 , 2023

Hi Taylor - Can you break down the whole Silicon Valley Bank fiasco for me? And, in general, how nervous should I be?

Hi Leah - Scale of 1-10 on nervousness, I think you can hover around a 3. I recently heard the phrase "always worry, never panic," and I feel like that's appropriate whenever something makes big waves in the world of finance. Some things to think about (without panicking):

1. Poor business management. When everything exploded in the 2008 financial crisis, loads of banks and money managers were engaging in the same subprime mortgage practices. The subsequent run on the banks left a lot of people looking for money that simply wasn't there. In these latest events, we're not seeing that. Specifically, with SVB, the bank waited too long to act on rising interest rates, so when things started looking shaky, they were caught flat-footed and without sufficient capital. Because banks invest the money people deposit, there's always an element of liquidity risk in the financial sector—SVB took things too far and waited too long to react.

2. Banks are still flush.
It might feel like the whole banking system is teetering, but most of these institutions and big banks are doing just fine. They're making plenty of money, have plenty of money, and there's no indication we're building toward something similar to the mortgage crisis we saw 15 years ago (doesn't feel that long ago, huh?). If anything, these recent events will cause CEOs to tighten things up and double-check balance sheets out of an abundance of caution. I imagine more regulations will get proposed, and oversight will go up. Your money is still insured, and chances are your bank is safe.

3. There will always be peaks and valleys.
Unfortunately, the inherent risk I mentioned in point #1 means things like this will happen. Usually, executives won't let balance sheets get so out of control that the company goes under, but it's not a sure thing. It's terrifying when it happens and serves as a reminder that banks are companies with shareholders and employees; as much as we'd like to believe these businesses are only there to serve us, that's not the reality of the situation.

If this whole debacle has you questioning your bank, that's healthy. Do some research and figure out if there's somewhere you'd feel more comfortable keeping your money, or if there's a bank that seems better aligned with your values. Whatever you decide, don't make any moves out of a sense of panic. Happy banking, Leah!

Taylor Kovar

"Go Far With Kovar" April 4 , 2023 Column


Legal Disclaimer: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.

 

 

 

 

 

 

 

 

 

 

 

 


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