Updates on the Silicon Valley Bank Issue and How It Impacts the Markets
March 13, 2023
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Jake Sanders, and I am a partner at Wealth E&P and operate as a Wealth Advisor and Certified Financial Planner.
We had a lot happen last week. No doubt, you've probably heard at least a little bit by now about Silicon Valley Bank. What exactly happened? On Wednesday, the bank came out and announced that it needed to raise an additional $2.25 billion to shore up its balance sheet. Not surprisingly, this spooked its depositors, and by the end of the day Thursday, their customers had collectively withdrawn over $42 billion. Pretty quickly after that, the Fed stepped in and shuttered the bank. What was the 16th largest banking institution in our country (at least at the beginning of the week) was closed. This spooked markets on Friday, in particular the banking sector, and we saw a pretty significant trading-off day on Friday to close out the week.
What's happened since then? The government has stepped in and said that they will ensure that depositors of both SVB as well as Signature Bank, which was also shuttered over the weekend, would be made whole. Even those over the $250,000 FDIC limit would be made whole. On top of that, the government has said that there will be no taxpayer bailout of these banks as well.
What's going on right now? Is this the same thing as the 2007 - 2008 financial crisis? The short answer is: we don't think so. For one, banks are in a pretty strong position as it relates to where they were then with their balance sheet. On top of that, both of these banks were pretty heavy on the spectrum with pre-risk or high-risk profiles. They were heavy in cryptocurrency for Signature Bank; Silicon Valley Bank’s patrons and depositors were heavy in technology stocks, which was part of why there was a run on the bank in the first place.
So, what does that mean for Wealth E&P? If you're a Wealth E&P investor, it's important to know that you do not have any exposure to those two banks or any other banks that are on these watch lists. On top of that, we do think it's always important to stick to a well-founded and well-thought-out process when we see market volatility like it is now. No doubt we're going to see more of that, even as I write this right now, the markets are pretty volatile and trying to find their footing. However, a well-founded process can guide us and help us to not make decisions based on our emotions at these times. If you're an investor that also has large cash deposits at a banking institution (in particular, over the $250,000 FDIC limit), it might be a good time to reconsider that. If you have questions about that, we feel like we have some good options here at Wealth E&P.
If you have questions about any of this or want to find out more about our process, please feel free to reach out or visit www.wealthep.com. Otherwise, stay tuned for our next Market Minute and our Economic Update Dinner recording! We appreciate you, and we hope you all have a great week.
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