QUESTION: How will the banking crisis affect my portfolio?
ANSWER: Things got a little spooky with recent unexpected regional bank failures. For some, the surprise shutdown of Silicon Valley Bank felt eerily like the collapse of Bear Stearns in 2008, which marked the start of the Great Financial Crisis.
The good news is this isn’t a systemic crisis like back then when so many banks held too many worthless real estate/mortgage loans. This time around each bank failed for their own unique reasons, not because of industrywide credit problems in loan portfolios. In addition, regulators quickly moved this time to insure deposits regardless of amounts, successfully muzzling a growing panic.
All’s well that ends well, right? Maybe. The ghosts of financial crises past were haunting enough to impact investor behavior. There was an immediate flight to quality as investors began buying up short-term Treasury bills, which dropped the rates from about 5% to 4.5%. So, we are all going to get a little less on our cash positions than a month ago.
For an almost-crisis, that’s not a bad result, but there are more subtle long-term factors to watch. For instance, the short-term scare has reminded many of us to be wary of risks. This means banks and borrowers are taking second looks at their risks in a higher interest-rate environment. While this behavior is healthy, caution is not a formula for excessive growth.
Rest assured that AMG will continue monitoring the situation, looking for warning signs of potential problems and opportunities to create wealth.
HOW AMG CAN HELP
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