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Regional Banks are on Shaky Ground. Are the Big Banks Next?

by Fortem Financial March 27, 2023

Has the Bank Crisis Really Been Solved?

After conversing with our Chief Economist Don Rissmiller yesterday about the status of the banking system, the question came up about whether the risk of deposit flight still remains. Commercial bank deposits, which yield next to nothing, have fallen by roughly -$571 bn while money market mutual funds, which yield closer to 4%, have taken in +$456 bn since the hiking cycle started. With the ability to move money by the click of a button, the search for deposits seeking higher yields, and ultimately the risk of deposit flights, will likely continue.

Commercial Bank Deposits vs. Money Market Fund Assets

 

Current Nasdaq Rally an Outlier Following Major Financial Events

Looking at performance for both the S&P 500 and Nasdaq following major global financial events shows that on average the S&P 500 falls by -1.1% in the two weeks following the event and the Nasdaq falls by -5.2%. Furthermore, the Nasdaq has traded negative every single time except one. The +6% rally in the Nasdaq since the collapse of SVB is the outlier.

Major Global Financial Crises

 

Bank Failures by Assets Not Above GFC Levels

From a cumulative bank asset standpoint, we are approaching GFC levels in regards to bank failures. With that said, the number of bank failures YTD in ’23 stands at 2 thus far, paling in comparison to ’08 where 25 bank failures took place. It should be noted that more bank failures actually took place in ’09 (140) although the cumulative assets of said banks ($170 bn) was less than what transpired in ’08 ($373 bn).

History of U.S. Bank Failures by Assets

 

Can't Say the Same from a Deposit Standpoint Though

However, from a cumulative deposit standpoint we are above ’08 levels. The asset-liability mismatches are well telegraphed to investors at this point but recent commentary from Treasury Secretary Yellen in which she dismissed the idea of blanket depositor insurance warrants the question of just how safe deposits are in the regional banking sector moving forward? At the very least, more prudent asset-liability management will likely lead to lower profits in the near-term.

History of U.S. Bank Failures by Deposits

Source: Strategas

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

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