Regional banks are doomed.
That’s not necessarily a bad thing… as long as you’re prepared for it.
It’s been almost a year since Silicon Valley Bank (SVB) went bankrupt in March – the victim of idiotic management. But the sobering reality is that the minor banking crisis is far from over.
Thousands more regional institutions will fail in the next three to five years. That’s why I haven’t saved or invested a dime in a single one.
Do not panic! But don’t ignore a historic change in the American banking system.
Here are my top five tips for protecting your family’s savings and investments in a rapidly changing world.
1. HOW TO KNOW IF YOUR BANK IS SAFE
Unless you are an expert at analyzing balance sheets, you will never know if your bank is on the brink of collapse.
But here’s one giveaway: As soon as you read about a regional bank in the news, the money starts pouring out the doors — and you can start the countdown to when reserves will be zero.
The SVB was toppled by incompetent bank managers who did not know how to deal with risks.
As interest rates skyrocketed and loans dried up, Silicon Valley banks’ technology clients emptied their accounts to keep their companies afloat.
This would not have been a problem if SVB managers had diversified the bank’s investments, but that was not the case.
Rising interest rates wiped out the $1.8 billion the SVB had invested in U.S. government bonds.
And as news of those losses spread, desperate customers rushed to withdraw their deposits, drying up what little reserves SVB had left.
If your bank is in the news, be concerned.
Today, the serious problems facing these small banks are more than just high interest rates.
Here’s the other ticking time bomb you need to know about.
Regional banks are doomed. That’s not necessarily a bad thing… as long as you’re prepared for it.
2. BEWARE OF THE COMING IMPLOSION OF REAL ESTATE
New York Community Bancorp (NYCB) made more headlines this week after reporting a surprise $252 million loss on its commercial real estate loan portfolio in the fourth quarter of 2023 alone.
Mark my words… NYCB will be wiped out in three months.
Once again it is the fault of incompetent managers, who have failed to deal with risks. And there are more of these silly bankers!
Banks, like NYCB, wrote large loans when interest rates were low.
Now that the COVID pandemic and remote work phenomena have left many commercial spaces empty, property owners without tenants can no longer pay their bills.
They also can’t refinance in this high interest rate environment.
So they go bankrupt and leave the banks with real estate that is much less valuable than it once was.
Given that small businesses reportedly hold nearly 70 percent of the $2.7 trillion in outstanding commercial real estate loans, it’s no surprise that Federal Reserve Chairman Jerome Powell recently warned that the collapse of the regional banking system is a “problem is what we will be working on for years to come’.
Start moving your money now.
Rising interest rates wiped out the $1.8 billion the SVB had invested in U.S. government bonds. And as news of those losses spread, desperate customers rushed to withdraw their deposits, drying up what little reserves SVB had left. (Above) A bank employee tells customers that the Silicon Valley Bank (SVB) headquarters is closed
3. GO WITH THE BIG BOYS
A century ago, a system of regional banks was a good thing.
Community bankers lived in the communities where they served their local businesses.
For better or for worse, those days are long gone.
Today, 97 percent of all banking in America is done online. It is part of a global trend: small banks are disappearing and large banks are growing in size and stability.
Look at countries like Switzerland, Canada and Great Britain. Their banking landscape is dominated by only a few highly regulated and well-functioning national institutions.
This will soon be the norm in America too.
Put your money into national operations like JPMorgan Chase, Bank of America, Citigroup and others.
These oversized and failing institutions are the safest places for your dollars.
And there’s an added layer of security you can take advantage of.
New York Community Bancorp (NYCB) made more headlines this week after reporting a surprise $252 million loss on its commercial real estate loan portfolio in the fourth quarter of 2023 alone.
4. DIVERSITY OR DIE (OR BEING SEPARATED)
The rule that absolutely everyone – from the billionaire to the average income earner – should follow is that you should not entrust more than $250,000 to a single bank, if you are lucky enough to have that much money.
The Federal Deposit Insurance Corporation (FDIC) guarantees any bank deposit in America (within 1-2 business days) up to $250,000 in the event of a bank failure.
Above that threshold, you’re on your own, so spread your money.
If you are one of the many millions of small business owners who form the backbone of the American economy, this is even more important.
Even though your money is protected, it may take several days to get your money back.
Silicon Valley Bank went bankrupt on Friday and some customers were not recovered until the following Monday and Tuesday.
Anyone who has to do payroll administration knows how stressful it can be.
While you’re at it, keep your finances separate from your partner’s!
FDIC insurance technically covers couples at the same bank up to $250,000 each, so a single joint account can be insured up to $500,000.
I don’t recommend this route.
My advice to married couples is to never give up their individual financial identities.
I’ve seen too many marriages destroyed by one spouse who can’t manage their finances. Every married couple should have one joint account to pay for all their shared expenses, as well as independent accounts at separate banks.
Finally, if regional banks are too risky for your savings… they are way too risky for your investments.
Thousands more regional institutions will fail in the next three to five years. That’s why I haven’t saved or invested a dime in a single one. (Above) First Republic Bank in Brentwood, California, as customers withdraw their money on March 11, 2023
5. AVOID RADIOACTIVE INVESTMENTS
Shares in regional banks are radioactive waste.
As mentioned above, many specialize in the collapsing commercial real estate market, while others dabble in high-risk lending, such as credit cards.
This puts them at risk if a large number of cardholders do not make their payments.
At a time when credit card debt is crossing the $1 trillion mark for the first time in history, this is not a gamble to take.
Even the big banks are not big investments.
As regional banks inevitably fail and the FDIC insurance system comes under strain, even the big banks will pay the price.
The FDIC scheme is funded by insurance premiums paid by all banks, regardless of size.
The bottom line is that regional banks are dinosaurs.
Their time is over.
Make sure you don’t get caught investing or saving in a bank that is too small NOT to go bankrupt.