Investing
Quick shot: The latest on banks, and how markets are reacting
Since the first warning sign from Silicon Valley Bank (SVB) last Wednesday, both large and regional bank stocks have seen some intense downside pressure.
Since the first warning sign from Silicon Valley Bank (SVB) last Wednesday, both large and regional bank stocks have seen some intense downside pressure. It’s worth noting, however, that the broad U.S. stock market has held up relatively well.
Why? We think it has to do with two key factors: 1) The uniqueness of SVB and Signature Bank’s balance sheets relative to other banks (especially the larger, systematically important ones) and 2) policymakers’ quick response to stave off contagion risk.
On the failed banks’ balance sheets: The composition of their deposits was largely concentrated in early-stage companies with high cash burn rates. Also, many of their securities investments had to be sold at a loss given to meet the sudden surge in demand for deposit redemptions given the rapid rise in interest rates over the past year.
On the policy response: The Fed, Treasury, and FDIC issued a joint statement on Sunday saying that all deposits at these banks – regardless if they were insured or not – would be available starting Monday morning. They also rolled out other support measures to help other banks should they face similar pressures.
We’re monitoring the situation closely, and will be back with our insights in Top Market Takeaways and Wealth Planning Insights as we learn more.
In the meantime, here is one consideration to take away: Stay focused on your long-term plan. Markets can always have a bad day, week, month, or even year, but history suggests that over the longer-term, diversified portfolios provide a solid defense. What’s more, history shows that the best days and the worst days for the market tend to cluster together.
All market data from Bloomberg Finance L.P., 3/13/23
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