Public Concerned Over Recent Bank Failures. How Are We Different?

In the past week we have learned of three bank failures in Silicon Valley Bank (SVB), Signature Bank and Silvergate Bank. Unfortunately, bank failures are not uncommon in U.S. history. Since just 1970 there have been over 90 bank failures. Silicon Valley Bank’s failure resulted from an old fashioned “run” on the bank. It is possible SVB’s collapse was self-inflicted when it chose to sell $21 billion of bonds at a $1.8 billion loss because many of those bonds it bought years ago were only averaging a yield of 1.79%. Rising interest rates, and its high concentration in lending to technology companies, seem to have contributed to this error. A bank relies on cash, and when withdrawals exceed what the bank has to satisfy those obligations, regulators shut it down. Signature Bank and Silvergate Bank had high concentrations in lending to crypto related businesses. These are not exposures typical of an average bank.

During the growth cycle, when monetary policy is loose, some banks get lured into taking on excess risk. There is quite a bit of chatter on social media right now about the recent bank failures. There is outrage and fear. Americans have a right to be outraged. A quick read on FDIC.gov will seek to ensure the American taxpayer that they are not on the hook when a bank fails. FDIC insurance is used to make account holders whole up to $250,000 after a bank failure. FDIC insurance is funded by FDIC-insured institutions and is backed by the full faith and credit of the United States government. Yet it doesn’t escape the public that depositors are the ones who give banks their money. While FDIC insurance may not be funded directly from taxes, it still ultimately comes from individuals and businesses.

“Is my money safe?” That is a question clients have and should ask. Crosby Advisory Group, LLC uses two custodians to custody client investment accounts: SEI Private Trust Co and Charles Schwab. For investors seeking maximum safety, SEI Private Trust Co was selected as a custodian because trust custody is the safest way to hold assets. Unlike a bank or brokerage service, SEI is not permitted to lend money, pledge money, trade on margin, use leverage, hold assets on another platform or co-mingle funds. Additionally, client money is not held on the balance sheet. It is held outside of SEI in a trust, titled in the client’s name.  You will never see a statement that says “FBO” (for the benefit of). With SEI, your assets are your assets; never leveraged, never retitled or pledged, never co-mingled with other assets. In the financial world there is no safer way to custody assets.   If you would like additional literature on private trust custody, please email or call me.

Derek Ballinger from our office will be putting out a video later this week on the recent bank failures, and how or if they may affect the broader market. Keep an eye out for it! If you have any questions regarding your accounts or measures that are in place to safeguard your assets, please reach out to me. Thank you for your trust.

Please note: This content is not a direct recommendation for investment. Investing involves risk including the potential loss of principal. Not all investments are suitable for all people. Crosby Advisory Group, LLC is a registered investment advisor in Ohio, Florida, and Texas.