The stock and bond markets were shaken last week as Silicon Valley Bank (SVB) fell into FDIC receivership. SVB is the first FDIC insured institution to fail since 2020. Over the weekend, there was speculation of another shoe to drop. Late Sunday regulators closed Signature Bank (SBNY), an FDIC insured bank in New York.

At this time, the market pundits do not believe the SVB and SBNY bank failures are a deeper sign of things to come. However, we are paying close attention to ongoing developments in the banking sector and in other industries for hints of any wide spread contagion.  We do think more banks will come under distress, but we are not expecting SVB and SBNY to be the first steps on the way to a systemic crisis.

So what caused these two banks to fail?  SVB has many high risk investments in its securities portfolio as the key to its demise.  Some experts are trying to link it to the rise in interest rates. We believe the Fed’s increase in rates is partially to blame but the customer base and lack of earning asset diversification contributed to the failure.  SVB serviced emerging and middle market growth companies focusing on Tech and Life Sciences. This unique combination, and the fact the most of their deposits were from Venture Capital firms, and not much from retail investors, put a run on the bank, along with the loss in their securities portfolio.

SBNY, fell victim to excess crypto-related deposits and was also experiencing material deposit outflows as the crypto market melted down last year and the first quarter of 2023.  

Also, last night, regulators, including the US Treasury Department, the Federal Reserve and the FDIC, indicated that all depositors of both banks would be made whole, even over the $250k/500k for single/joint account holders.  We do feel today, and this week, regulators will take emergency measures to help backstop the banking system and reinstall depositor confidence.

At the time of this update, we are hearing the government is contemplating several measures to attempt to ensure the stability of the banking system.  Any such developments, we believe will be viewed as a positive by the markets.  If you have any further questions, please feel free to reach out to me and I will do my best to address them.  But it is important to point out, that your deposits with Fidelity or First Clearing are not impacted by this recent news.