Going back to the origins of banking, money lenders in Northern Italy would setup a wooden trading bench in the courtyard to conduct their affairs. If a lender became insolvent, their trading bench would be broken in two. The word bankrupt is derived from the Italian word for broken bench , or ‘banca rotta’.
Not a day goes by without seeing coverage of banks imploding or depositors having a crisis in confidence in these institutions. First, we want you to know that we have no exposure to Silicon Valley Bank or Signature Bank.
Second, I would note that within every crisis, is an opportunity. With some banking institutions having a crisis in confidence, the FDIC stands in wait to backstop these institutions and the Federal Reserve will have to continue to monitor and perhaps adjust their rate-hiking cycle. This, in turn, holds down lending rates and with it reduces the costs for interest rate cap pricing for variable rate loans. This can be a positive for operators who have had to pause distributions due to interest rate expenses.
If you’re having concerns about any of your financial institutions, and you have concentrated account balances above the $250k threshold, you should diversify them across multiple institutions. Remember, no insured depositor has lost money in a bank since the FDIC was created in 1933.
Today, we’re seeing this contagion spill over to the other side of the pond and is targeting Swiss and European banks. We expect this turmoil to continue, but also note that this is not the same as the Great Financial Crisis. This crisis is not being driven by poor mortgage loans, but rather by asset and liability mismatches. In today’s digital economy, if enough depositors demand their money back simultaneously, the banks simply don’t have the cash and can’t secure it fast enough to plug the outflows.
My guess is that there will be more casualties before this is over. While being mindful of the contagion risks, we’re doubly focused on picking up assets where the opportunities arise. If you’re feeling uneasy or need help navigating these turbulent times, schedule a call with us as we’re here to add value to your investing journey.
