The Impact of the Regional Bank Crisis Isn’t Over, Finance Pros Say. What to Watch Next.
The 2023 regional bank crisis might seem like a distant memory, but it has left its mark on the banking industry. With the recent collapse of First Republic Bank and the continued drop in the iShares U.S. Regional Banks ETF, investors and clients are understandably worried about the health of U.S. banks. In this piece, we hear from finance professionals who weigh in on what clients should watch out for and what they need to do to protect themselves.
What the Finance Pros Are Saying
Patrick Fruzzetti, Managing Director, Rose Advisors (Hightower)
Fruzzetti advises his clients to steer clear of banks and shares his skepticism about their business model. He highlights that banks rely too much on leverage, which exposes them to duration risk. He suggests that the banking crisis is more about liquidity than solvency and notes that reduced liquidity is never healthy for the economy, and it increases uncertainty, which investors don’t like. He believes that market volatility is here to stay, and investors need to be cautious in their investments.
Matt Michaels, Co-Chief Investment Officer, Fidelis Capital
According to Michaels, the rapid rise in interest rates has resulted in banks experiencing issues when confidence erodes and deposits are pulled from the balance sheet. He advises clients to evaluate their financial situation and consider moving their excess deposits from banks to brokerage accounts, Treasuries, or money-market funds. He also suggests that it’s essential to keep a close eye on the balance sheet and make necessary adjustments to align with changing interest rates. Michaels believes that it’s too soon to declare an all-clear signal, and clients need to remain cautious.
Aaron Brachman, Wealth Manager, The Washington Wealth Group (Steward Partners)
Brachman is critical of how regional banks rely on uninsured deposits and their customers’ willingness to keep money uninsured with banks while earning an uncompetitive rate of interest. He notes that the recent bank failures are causing clients to question their accounts and consider moving their assets to other investment vehicles, such as U.S. Treasury money-market funds, where they can earn a more attractive return. Brachman warns that as banks’ costs of capital rise, they will likely pass on those costs to their customers.
- The 2023 regional bank crisis occurred due to a sharp rise in interest rates and liquidity issues.
- The collapse of First Republic Bank in May 2023 has added to investors’ and clients’ concerns about the banking industry’s health.
- The iShares U.S. Regional Banks ETF has fallen 37% since early March, increasing market volatility.
The 2023 regional bank crisis has left its mark on the banking industry, and finance professionals warn that clients need to remain cautious. With the recent collapse of First Republic Bank and the continued drop in the iShares U.S. Regional Banks ETF, clients need to evaluate their financial situation and consider moving their excess deposits from banks to other investment vehicles. Banks’ costs of capital are likely to rise, and they will pass these costs onto their customers. Clients need to keep a close eye on their balance sheets and make necessary adjustments to align with changing interest rates.
The impact of the 2023 regional bank crisis is far from over, and finance professionals warn investors and clients that caution is the watchword. While the banking system is relatively sound, banks’ reliance on leverage and uninsured deposits exposes them to duration risk, which can affect liquidity. Clients need to evaluate their financial situation and take necessary steps to protect themselves from potential risks.