How failed banks impact investors

Financial Strategies

It can be very unsettling to hear of a bank failure such as Silicon Valley Bank (SVB) last month. Investors may wonder how they should react or if they should adjust their portfolios.

First, a little history lesson to put this into perspective. When depositors rush to get their money out of a bank that is nancially in trouble, it is called a “run” on the bank. ese are not new and have occurred at di erent levels of severity in the past, the worst in the 1930s during the Great Depression. At that time, there was contagion across many banks, not our current situation. While bank insolvency can often come on the heels of the Federal Reserve Board raising interest rates, that is not solely the cause, according to Mariner Wealth Advisors Chief Economist William Greiner.

Each bank must manage the risk of lending, investing, cash deposits and withdrawals. If any or all of those are out of balance, problems start to percolate. When you have high-risk loans, such as technol- ogy start-ups, and you are short on liquidity (more withdrawals than deposits), and the investments backing the deposits decline in value, you have a recipe for failure. ey may also use Treasuries to back up deposits. When the Fed raises interest rates, and the value of those Treasury bonds declines, bankers may need to sell at a loss to cover withdrawals. Once this spiral starts, or collateral is devalued due to bad loans, depositors may demand their money causing a run on the bank.

Many banks issue loans on real estate or other business collateral.

Fed Chairman Jerome Powell remained concerned about in ation when he testi ed before Congress in March. is drove interest rate expectations higher after several interest rate hikes over the last three quarters. is downward pressure on bond values and concerns the bank would need to raise capital, caused some technologyfocused venture capital companies to remove funds from SVB.

It was very fortunate that a contagion was avoided, as the U.S. government response was swift and e ective. Once the facts were released and average depositors realized they were not involved in a bank that does high-risk lending, some of the pressures eased.

Investors will likely review their

LINDA SHAPLEY Publisher lshapley@coloradocommunitymedia.com

MICHAEL DE YOANNA Editor-in-Chief michael@coloradocommunitymedia.com portfolio to make sure they are not invested in small banks in the venture capital space or have heavy exposure to commercial real estate. ey may also avoid banks that have not had proper risk management or oversight. ese things created a perfect storm scenario for SVB. It may be wise to stay with large institutions commonly known as “too big to fail” due to their backing by the Fed. Large banks may actually bene t from depositors moving money to them from small banks in amounts not covered by the $250,000 limit for FDIC insurance. ese days you don’t really run to your bank and can click to manage transactions on your phone. It is not recommended to keep large deposits in any one institution, just as you would not put all of your investments in one individual stock. Work with your wealth advisor to determine the right amount to leave in the

Jimmy Stewart as George Bailey in “It’s a Wonderful Life” was able to instill trust in his customers to survive a run on his bank during the Great Depression. In real life during that time, the Emergency Banking Act of 1933 formed the Federal Deposit Insurance known as FDIC.

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ERIN ADDENBROOKE Marketing Consultant eaddenbrooke@coloradocommunitymedia.com ballyhooed and speculated about the $787.5 million settlement which Fox News agreed to pay Dominion Voting Systems in the libel suit. Talk about a last minute settlement is one was not on the courthouse steps, but inside the courtroom as each set of attorneys was ready to present their opening statements. Regardless of your political persuasion, you have to believe that Rupert Murdoch and the Fox News key celebrities had every intention of trying to settle the case. It was paramount for them to avoid open embarrassment. is way we can only speculate as to as least a part of what would have been a grueling examination by Dominion’s attorneys. is way the high-pro le personalities of Sean Hannity, Tucker Carlson and others can crawl back in their holes and deny a portion of the facts. However, the public knows via

SEE CHRISTOPHER, P11

Letter To The Editor

Sprawl is the problem

I grew up in this great city of ornton and have seen it change and grow over the years. is growth can be exciting but it’s also worrisome. When I was a teenager growing up in ornton we had more small businesses such as the record store Don’s Discs & Mile High Comics that drew people from Denver to ornton looking for unusual items to buy. Now it seems we only have strip malls and suburbs. Over the years my family and I have seen large housing developments be built without a balance of a ordability or access to basic needs in our south end of town.

To the north, the development and urban sprawl seems problematic as many of the homes are out of price range for most working families. e sprawl in our open space also left many ornton residents concerned for recreation and wildlife. To add to this troubling situation, our ability to access public transportation has gotten worse as ornton grows to the north.

When my son was younger he was on the ornton Dance team and took the bus from our house to dance class at the community center. He loved the independence that RTD provided until routes started to get cut and the classic ornton 92 bus route was eventually changed and would no longer get him to his class. is required me getting o of work early and driving home in tra c to get him to dance on time. We need more housing that working class families can a ord near transportation lines.

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Email letters to staylor@coloradocommunitymedia.com emails and conversations that Fox stars were acknowledging Trump’s “stolen election” was a lie, but told a totally di erent story on-air. Although Fox News will never admit their wrongdoing, the $787.5 million “hush money” speaks volumes.

Deadline Wed. for the following week’s paper.

What is the fallout of the settlement?

First, truth was the winner in this litigation and accountability prevailed. Hopefully, people like Sean Hannity and Tucker Carlson will have learned a lesson and speak the truth in their future reporting.

Secondly, hopefully followers of Fox News reporting and commentary will blatantly see that lying has a big price tag. e American public deserves the truth. I would think Fox News will have to earn back the trust of at least a portion of their following. is will be a slow go. Plus, the other networks best perk up and understand the price for lying to the American public. If we lose truth in reporting to the public, we are dangerously close to seeing our democracy crumble.

Oh, by the way, what does Mr. Trump have to say about the settlement?