The market for regional banks is in a period of volatility which means that your MSB bank account could be vulnerable. 

SVB COLLAPSE

The recent government takeover of Silicon Valley Bank (SVB) has sparked concerns about the vulnerability of regional banks. SVB is a regional bank that primarily caters to technology and innovation companies. The bank was struggling with financial losses and non-performing loans before the government intervened.

The takeover of SVB by the government has sent shockwaves through the banking industry. Regional banks are now facing the possibility of increased regulatory scrutiny and a decrease in investor confidence. This is especially true for banks that cater to niche industries, like money services businesses (MSBs), technology, and innovation.

KNOW YOUR BANK

The regional bank market can be volatile due to a variety of factors and it is important for investors to stay informed of vulnerability factors and to closely monitor the performance of individual banks in order to make informed investment decisions.

Regional Bank Vulnerability Factors

1. Market fluctuations
2. Changes in interest rates
3. Regulatory changes
4. Shifts in investor sentiment

Market Fluctuations

One of the main factors that can affect the volatility of regional banks is changes in market conditions. These banks are often more closely tied to local economies and markets than larger, national banks, which means they can be more vulnerable to shifts in the local economy or specific industries that they serve.

Changes in Interest Rates

Interest rate changes can also have a significant impact on regional banks. Since these banks typically rely heavily on the interest income from loans, changes in interest rates can affect their profitability. If interest rates rise, it can make it more difficult for regional banks to attract borrowers, which can impact their earnings.

Regulatory Changes

Changes in regulations can also impact the performance of regional banks. For example, changes in capital requirements or lending standards can impact the ability of regional banks to make loans and generate revenue.

Shifts in Investor Sentiment

Shifts in investor sentiment can also contribute to volatility in the regional banks market. If investors become more cautious or risk-averse, they may pull their investments from regional banks, causing share prices to decline. This can be especially true during times of economic uncertainty or market turbulence.

REGIONAL BANK AUDIT

One of the concerns for regional banks is the potential impact on their auditing and accounting practices. KPMG, one of the “big four” accounting firms, was responsible for auditing SVB. The firm has come under scrutiny for its role in the bank’s financial reporting and they are likely to increase their audits of other regional banks.

INSURED INVESTMENT

The Federal Deposit Insurance Corporation (FDIC) is a government agency that provides insurance to banks and savings associations up to $250,000. The FDIC will likely oversee the sale of the bank’s assets and the transfer of its deposits to another institution. 

In addition to FDIC, a larger bank has other cash management services like Insured Cash Sweep (ICS). This service allows depositors to have their funds placed into multiple accounts at one or more banks to ensure that all of their funds are FDIC insured. The ICS service automatically allocates funds among multiple banks in order to provide the depositor with maximum FDIC insurance coverage.

SOLUTION

It is paramount that you know your bank and that you understand how your money is protected in case of a bank shutdown. The market is volatile, but there are many banking options. 

If you are interested in looking into alternative MSB banking options that could offer more protection for your business, contact us.