You’ve likely seen headlines about the recent failures of Silicon Valley Bank and Signature Bank, commercial banks that were taken over by federal regulators on Friday and Sunday. While the government is taking steps to reassure investors, the two collapses have understandably drawn nationwide concern.

Our initial understanding and analysis indicate that many of Silicon Valley Bank’s (SVB) and Signature Bank’s issues resulted from one or more vulnerabilities in the way their bank was managed:

• High industry concentration: the SVB customer base was dominated by technology start- ups and venture capital firms that fund them, while Signature Bank had many customers in the crypto currency Since the market conditions over the last year have been more difficult for these firms, their customers needed access to their cash more quickly.
• Large number of deposits above FDIC coverage limits: when there is a large number of deposits not insured by FDIC protection, this causes more concern when a bank begins having financial trouble since customers are more likely to withdraw funds that would not be otherwise insured (ie triggering a “run on the bank”). Both banks had an unusually high number of deposits above the current FDIC
• Rapid growth in deposits: the boom in technology fundraising and IPOs during the pandemic led to a surge of deposits for SVB – almost tripling over this The overall banking industry’s deposits grew a more modest 34%.
• Rapid growth in lower yielding securities: because the deposits were growing faster than the bank’s ability to loan, SVB invested the excess cash into securities including low-yielding Treasury bonds.  As of the end of 2022, SVB had 5 times the amount of the average bank held in these securities. Compounding this problem, since the Fed increased interest rates so dramatically in 2022 to try to reduce inflation, these bond prices fell more dramatically than expected.

While there may be other regional banks that find themselves in similar situations over the coming months, experts are considering these recent bank failures to be somewhat isolated events. The current data from large banks show that their capital ratios are some of the highest they have been in the last thirty years.

Late Sunday, the Fed, FDIC, and Treasury stepped in to provide protection for customers of these banks in an attempt to stem any liquidity crisis and provide more confidence in the banking system, especially smaller regional banks. In addition, the futures markets are now predicting the Fed will think harder about a 0.50% interest rate hike next week and may only institute an additional 0.25% hike instead.

While the details surrounding the future of these firms and their assets are still unfolding, we wanted to address any apprehension you may have about whether these events affect the standing of your financial accounts and cash balances at Raymond James.

Reflecting the influence of their client-first values and prudent management principles, rest assured that Raymond James is well-positioned to weather changing market conditions. The firm has been and remains committed to prioritizing risk management and long-term outcomes ahead of short-term gains. This dedication is exemplified by their 140 consecutive quarters of profitability, which extend across multiple recessions and difficult markets, including the 2007-2008 financial crisis.

As further evidence of their values in action:

• Raymond James has among the strongest capital ratios in the industry with double the regulatory requirement considered to be well-capitalized.
• Raymond James has A-level credit ratings with stable outlooks across all three major credit rating agencies – a testament to their consistent performance and strong balance
• They are leaders in offering clients as much FDIC coverage as possible. Their sweeps program offers up to $3 million of FDIC insurance.

We hope these points offer you reassurance, but we recognize the short-term impact that a bank failure can have on financial markets and consumer confidence. We’ll be closely monitoring the situation in the days ahead but encourage you to review the balances you have in your bank accounts to determine if they are within the current FDIC limits.

We expect these recent headlines will make the markets jittery in the short-term but may actually help the markets in the longer-term since we believe it will encourage the Fed to consider other financial implications of higher interest rates when making their policy decisions over the course of this year.

We are always available to answer your questions and offer perspective. Please do not hesitate to reach out. Thank you for your continued trust.

The S. Harris Financial Group

Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. S. Harris Financial Group is not a registered broker/dealer and is independent of Raymond James Financial Services.  Investment advisory services offered through S. Harris Financial Group and Raymond James Financial Services Advisors, Inc.  

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Financial data as of 12/31/2022. Credit ratings as of 2/13/2023. Past performance is not an indication of future results. The information provided is for informational purposes only and is not a solicitation to buy or sell Raymond James Financial stock. A credit rating of a security is not a recommendation to buy, sell or hold securities and may be subject to review, revisions, suspension, reduction or withdrawal at any time by the assigning rating agency.

Banking and lending solutions provided by Raymond James Bank, member FDIC. Raymond James Financial Services, Inc., and Raymond James and Associates, Inc., are affiliated with Raymond James Bank, member FDIC.

Portions of this material were created by Raymond James for use by its advisors.

ERISA accounts and managed IRAs are not eligible for the multi-bank sweep program. These accounts can elect RJBDP – Raymond James Bank Only. RJBDP – Raymond James Bank Only offers FDIC coverage up to $250,000 ($500,000 for joint accounts). Funds held at Raymond James Bank and participating banks in the Bank Deposit Program are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000  per depositor, per insured bank, for each account ownership category. Additional information can be found at fdic.gov or by calling 877.ASK.FDIC (877.275.3342).

Unless otherwise specified, products purchased from or held at affiliated Raymond James Financial, Inc., companies are not insured by the FDIC or any other government agency, are not deposits or other obligations of Raymond James Bank, are not guaranteed by Raymond James Bank, and are subject to investment risks, including possible loss of the principal invested.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of S Harris Financial Group and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.