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Financial News: U.S. Banking System

Since Friday, March 10, 2023, the banking industry has dominated the news with regulators regarding Silicon Valley Bank and Signature Bank among others. The Federal government introduced emergency measures to give bank customers access to their depository funds in excess of the $250,000 FDIC-insured amounts for one year. This was done to smooth markets, stop potential bank runs, head off a systemic banking situation, and more. Although the Federal government believes a banking crisis was averted with the actions it and others undertook, it is not truly known if these measures will work as intended and if so, for how long. 

Accordingly, it is suggested that you: 

1. Assess your business and personal cash and investment security positions.
2. Contact your investment advisor to best situate and mitigate risk by evaluating the quality and types of institutions that hold your cash and investment securities.
3. Ascertain which banks or brokerage houses they are in, what is insured by FDIC, and what coverages you have under SIPC for cash and investment securities. Regarding SIPC, please note that it is not a government agency – it is a federally mandated non-profit that requires membership by most registered broker-dealers. Its coverages vary but likely exceed FDIC limits on securities, and some must be paid for – get your coverage confirmed.
4. Evaluate your investment holdings with your investment advisor, including fixed-income holdings for laddering and quality of holdings.
5. You should also next evaluate the health of your largest customers and key vendors and perform some fresh due diligence on them and update it frequently.
6. If borrowings are significant, project the cost of variable rate debt on your operations and the loan covenants. 

We would also wish to take this opportunity to express caution for those businesses that have borrowings that roll over each year (e.g., line of credit) or which have long-term borrowings that are up for renewal in the near term. Expect some bumps in the road for this year’s process. The lenders will be more selective, the costs of the loan may increase, the interest rates to be charged will clearly be increased and other terms may change, interest rate swaps may be required as fixed term rates will create more risk, and the lender may have limitations in their availability to provide or renew a loan. It is suggested that you begin this process sooner than you would normally do so.

*This banking situation is fluid and will likely change day-to-day. This article is meant to be an alert for risk and is not investment advice.*

Please contact your Gettry Marcus Advisor to discuss how we can help you further navigate through this.