The Banking Crisis: What It Means for You

You have probably heard rumblings about the ongoing banking crisis across America. Silicon Valley Bank was the first domino to fall on March 10th of this year. Two days later, Signature Bank of New York was closed. Then on May 1st, First Republic Bank of San Francisco was taken over by JPMorgan Chase Bank. Bad news, especially for regional banks, continues to make headlines as bank stocks plummet as much as 60% or more.

What is behind this, and what does it mean for you?

The cause can be found mainly in rapidly rising interest rates from the Federal Reserve in an attempt to tamp down inflation. These much higher rates created a ‘one-two punch’ for banks. On the asset side, investments and the collateral for loans to commercial properties became significantly discounted. On the debt side, depositors began withdrawing funds to reinvest at higher rates elsewhere. This caused banks’ asset-to-debt ratios to get out of whack and has federal bank regulators now closely scrutinizing all banks.

For us ordinary folks, this is a bifurcated crisis between depositors versus stock and bondholders.

If you are a depositor

Deposits are likely safe; however, it may be wise to keep the prescribed FDIC limits with any specific bank to be sure. All depositors of FDIC-insured banks are insured up to $250,000 per individual account and $500,000 for joint accounts. Beyond that, the FDIC has intimated it will step in to insure the solvency of the banks it oversees, and they are quickly taking steps to work with the most troubled banks.

If you have high cash balances at your bank, ask the bank for options on the highest-earning liquid account.  For example, it might be a bank money market, a higher interest-earning checking option, or a short-term CD.

If you have a bank passbook savings account, meet with your banker to investigate other interest-bearing options.  There are likely higher options available to earn more money on cash balances.

If you are a stock or bondholder

Owners of bank stock and bonds have seen a dramatic fall in values and, in some cases, a complete wipe-out of their investment. My best guess is that the worst is not over, but bank stocks will recover in time. If you plan to stick it out, you may need patience because this could take years. Always consult with your financial advisor to determine what’s best for your situation. 

For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.


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Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of SuccessJ.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaireand 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article.


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