Monday, March 13, 2023
Over the this past weekend, the US government approved plans to safeguard, depositors and financial institutions from the collapse of the Silicon Valley Bank, and from Signature Bank in New York. According to an article from CNBC, the federal reserve was creating a bank term funding program to help secure institutions affected by the instability sparked by the silicon valley bank failure. (Source: https://www.cnbc.com/2023/03/13/how-the-signature-bank-silicon-valley-bank-failures-may-affect-you.html).
The question everyone asked since last Thursday (3/9/23) has been "Why did Silicon Valley Bank go bust? And what does it mean for MY bank?" The best explanation is that Silicon Valley Bank (SIVB) was uniquely at risk because of its unusually low percent of individual depositors, and its unusually high portfolio of loans and securities backing up their deposits. How "unusual"? The following chart, from JP Morgan Asset Management shows that Silicon Valley Bank was indeed in a class of its own – a deadly combination of the lowest % of retail depositors and the highest percent of loans and securities backing up their deposits among all similarly-sized banks in the country. Oh, and one more thing: the SECOND-worst bank by these measurements, SBNY, was suddenly forced into receivership by regulators on Sunday 3/12/23. (Chart from JP Morgan Asset Management).
President Joe Biden, said Monday that: "Every American should feel confident their deposit will be there if and when they need them." Only time will tell if these recent bank closures will result in any more contagion throughout the financial system. But, what that makes me nervous is when a government leader gets on TV and tells us that everything's going to be okay. This seems a little too familiar with what they told us in 2008 about the mortgage crisis…not going to be a big deal at all! And, we all knew how that worked out.
However, Panic is not a good plan, from my experience. With that in mind, there are certain things you can do to help protect your savings and survive a potential run on the banks.
Insuring Your Savings The first step is to ensure your savings. The basic coverage from the FDIC is $250,000 per depositor for each type of account ownership, such as a single or joint account holders. They also allow you to split cash among these different ownership titles. Here's a copy of a link to the FDIC insure deposits:
https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-english.pdf). I suggest you review these, and contact your local bank as needed to make any adjustments in your personal savings or checking deposits.
T-Bills Interest rates have moved higher over the last year. Money markets, and particularly US T bills, are paying some of the highest rates in decades. US Treasury bills, or T bills, which are short term, government notes of one year or less are considered some of the safest investments on the planet. They can be held in a brokerage account; even if the broker were to fail, you would receive your transferred T-bills to another solvent broker.
Keeping Cash On Hand, and Other Essentials, Too! For a number of years, I've been suggesting to our clients to keep at least three months of living needs in cash, on hand. Keep in a safe place where you have access to it. That way you're not standing in line at ATMs, or a bank drive-thru, desperate for cash when everybody else is. Having immediate access to food, water, necessary medicines and other personal necessities, should also be a part of an effective plan.
Gold / Silver As of this writing, gold is up over 2% (Monday), and silver is up over 6%. These metals, particularly gold, have historically been viewed as a store of wealth, and has been used to protect foreign bank reserves for hundreds of years. According to the
World Gold Council, 2022 was the strongest year for gold demand in over a decade. We allocate 10% to 20% of our clients investment portfolios into gold, silver, and shares of mining companies that produce these metals. If you don't hold any gold, and/or silver related investments, now would be a good time to consider this. In the event of a financial collapse, similar to what we experienced in 2008, gold was up almost 5% during the 2008 mortgage crisis. (Source: Investor's Business Daily).
Don't Panic, But Have a Plan I am not suggesting that we are at the brink of another financial meltdown similar to 2008. But, it's sounding very familiar…only time will tell. In the meantime, it doesn't hurt to be prepared personally, and financially.
We are monitoring our positions within the stock market, and are prepared to exit any position that does not appear to be holding up, in the event of a stock market sell-off. As of now, most of the stock indexes are currently higher than they were on Friday. Which could be a good sign. Nonetheless, being prepared and having a plan is important during uncertain market conditions.
Will report more as time moves along, and things become more clear on how these recent bank failures will affect the financial markets. Please let us know of any concerns you may have.
For more information on how to be prepared financially, contact our office at (405) 340-1717 or email greg@womackadvisers.com.
P.S. If you'd like to review your risk assessment as it pertains to your investments, please click here to complete. We will automatically get a copy once you've completed it and will be in touch with you to review.
Greg Womack
1366 E. 15th Street
Edmond, OK 73013
Phone: (405) 340-1717
www.womackadvisers.com