135: The Domino Effect: How a Bank Run Affected Commercial Real Estate
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We’re guessing that by now you’ve probably heard about the Silicon Valley Bank crisis that just happened. 😟😟
It’s a pretty big deal, and it had a major impact on a lot of hardworking people and businesses. You see, around $150 billion dollars of uninsured deposits (meaning deposits above the $250,000 FDIC insured threshold) were at risk of disappearing completely.
Can you imagine losing that much money overnight?
It’s pretty scary stuff. 😖😖
People had put their trust in the bank to keep their money safe, but in just a few days, that trust was shattered beyond repair. It just goes to show how important it is to be careful with your finances and to always do your research before trusting any financial institution with your hard-earned money.
Basically what happened is that the FDIC took over Silicon Valley Bank just a few days ago on March 10th, 2023.
➡️ And get this, it’s now the second largest bank failure in US history, right behind the notorious Washington Mutual collapse that happened back in 2008. If you think about it, it’s pretty shocking to think about the size and scale of these financial institutions, and how quickly they can crumble. It’s a wake-up call for all of us to pay attention to what’s going on in the banking world and to keep an eye on our own finances too.
SVB’s clientele is mostly made up of tech companies and startups, with some big players like Roku in the mix.
On Sunday, March 12th, the Fed Reserve stepped in with some pretty big news.
They announced that they’re to make sure that both insured and uninsured deposits with SVB are paid in full. That’s a relief, right? It’s good to know that people won’t lose their hard-earned money because of the bank’s failure. It just goes to show the importance of government regulation and oversight in the financial sector.
We are so glad that the Fed stepped in and made the decision to ensure that both insured and uninsured deposits are paid in full. And honestly, it’s a good thing they did. If they hadn’t, it could have triggered a massive bank run across all financial institutions starting on Monday, March 13th.
Can you imagine the chaos that would have caused? 🧐🧐
It just goes to show how important it is to have some kind of safety net in place to protect people’s money when things go wrong with banks. While we are glad that the Fed made this decision, it may have been their only real choice.
All this chatter has definitely raised some questions about the potential for financial contagion.
Some people are wondering, “Is it not a matter of if, but when, the other shoe will drop?” It’s a pretty concerning thought, especially given the size and scope of the banking industry as a whole.
We the Kitti Sisters have actually spoken out about this issue before.
We will be the first to tell you that we don’t agree with the heavy-handed approach that the Fed has taken in order to curb inflation. It’s a tough balance to strike – on the one hand, you want to keep inflation under control and ensure the stability of the financial system, but on the other hand, you don’t want to stifle economic growth or unfairly burden certain sectors of society. It’s definitely a complex issue, and it will be interesting to see how it all plays out in the coming months and years.
You can read about this more on your own, but recent comments from former FDIC Chair William Isaac sound a pretty ominous note about the state of the banking industry. In a recent interview, he said, “There’s no doubt in my mind: There’s going to be more. How many more? I don’t know. How big? I don’t know.”
It’s a sobering thought, especially considering that Isaac has experience leading the FDIC through a similar period of economic turbulence in the 1980s.
To add to this, Isaac went on to say that the current situation reminds him a lot of the 1980s, when banks were failing left and right due to skyrocketing interest rates and inflation. It’s a concerning parallel to draw, and it’s making a lot of people wonder what the future holds for the banking industry as regulators and policymakers respond to this challenge, and what steps they take to ensure the stability of the financial system.
You better believe that it’s also making a lot of people think twice about the security of their savings and checking accounts.
Of course, we don’t want to add to any panic or frenzy around withdrawing funds 🥵🥵, but it’s definitely a good idea for all of us to reassess how we’re keeping our money safe.
We’re always looking out for the financial well-being of our friends and family. We hope that none of our loved ones were directly impacted by this bank failure. But even if we weren’t directly affected, we’re all feeling the fallout in some way or another. It’s a good reminder that the decisions we make about our money have real-world consequences, and it’s important to be as informed and prepared as possible.
On a bigger scale, one of the big questions on a lot of people’s minds is how this is going to impact the commercial sector.
Here’s what we think is going to happen: a few weeks ago the Federal Reserve announced they are raising interest rates by 25 bps, which happened on March 22, 2023. Going forward, the market believes that the Fed will halt raising the interest rate.
The reason for this is simple – they simply can’t afford to risk another systemic financial institution failure like the one we just saw with SVB.
It just goes to show how interconnected all these different pieces of the economy really are. The failure of a single bank like Silicon Valley Bank can have ripple effects that impact everything from interest rates to inflation to consumer confidence. It’s a beyond the challenging situation, and it’s going to take some careful maneuvering to get everything back on track
Even the analysts at Goldman Sachs are now saying that they don’t expect the Federal Reserve to raise interest rates at their upcoming meeting on March 22. This is a pretty big shift from their previous expectations, and it’s largely due to the recent stress we’ve seen in the banking sector.
It just goes to show how interconnected all these different pieces of the economy really are.
The failure of a single bank like Silicon Valley Bank can have ripple effects that impact everything from interest rates to inflation to consumer confidence. It’s beyond the challenging situation, and it’s going to take some careful maneuvering to get everything back on track.
No matter how you look at it, it sure seems like the Fed is taking a more cautious approach in light of recent events. And that could be good news for those of us in the commercial real estate space who have been dealing with rising interest rates over the past year or so.
If the Fed does decide to hold off on any further rate hikes until they’re certain that the banking sector is stable, that could help stabilize pricing in the commercial real estate market. It might even help set the stage for a more normal flow of transactions, which would be great news for everyone.
More than anything, the recent events surrounding Silicon Valley Bank should make us all think twice about the safety of our money in the bank.
It’s a wake-up ⏰ call that even some of the largest and most well-respected financial institutions can experience significant problems and potentially even fail.
Of course, we don’t want to create a panic or a run on the banks, but it’s important to be aware of the risks involved in keeping our money in the bank. It’s a good idea to make sure that you’re not keeping all of your eggs in one basket, so to speak, and to consider diversifying your holdings across different types of assets and investments.
It’s important to remember that banks 🏦 are the ones who benefit the most from our deposits.
They use what we like to call “funny math” to turn our $1,000 deposit into $10,000 worth of loans that they can issue. And while they may be paying a measly 3% interest on a savings account, they can turn around and charge 7% or even more when it comes to credit cards, with some rates as high as 20%. With our other and very serious math, that means they’re making a profit of 13% on your hard-earned money. 😣😣
But here’s the thing: that 13% profit isn’t just on our $1,000 deposit. It’s on billions of dollars of deposits that they hold collectively. So, while they may only be making $30 a year on our $1,000 deposit, they’re making a whopping 17% on $10,000, and so on for billions of dollars of deposits. It’s a significant amount of money, and it’s something that we all should be aware of when deciding where to keep our money.
Remember also that banks aren’t your financial BFFs like we are, they are businesses, and their ultimate goal is to make a profit.
They use our deposits to make loans and other investments, and they make money off the interest and fees they charge on those loans. As depositors, we get a small percentage of that interest, but the banks keep the lion’s share. And make no mistake, when $h*t hits the fan, it’s us common folks left holding the bag.
We hope the biggest takeaway here is that you absolutely HAVE to be proactive and take control of your finances. Always look for investment options that align with your goals and values!
🏢 Multifamily apartments are a great alternative investment option because they provide a steady cash flow and have the potential for long-term appreciation.
Plus, unlike depositing money in a bank, you have more control over where your money is going and how it’s being used.
It’s all about making informed decisions and taking the steps necessary to secure your financial future. 🤟❤️
Here’s where real estate, particularly multifamily apartments, can offer a variety of advantages over traditional banking options. In addition to the potential for rental income and long-term appreciation, owning tangible assets can provide a sense of security and stability.
It’s also worth noting that real estate investments can provide diversification opportunities for your portfolio.
However, as with any investment, it’s crucial to do your research and understand the potential risks involved. That’s why education and due diligence are key when it comes to investing in real estate.
It’s up to each individual to assess their own financial goals and risk tolerance and make informed decisions about where to put their money.
At the end of the day, it’s reassuring to know that the Fed made the decision to provide funding to make sure that both insured and uninsured deposits are paid in full. 😌😌
But while this is definitely good news, it also brings to light the possibility of financial institutions failing on a larger scale. It’s something we should all keep in mind as we reassess how we think about keeping our money in banks and alternative options to protect our finances.
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