Return of the Nervous Weekend

Early in my career, I remember reading an op-Ed in the weekend Wall Street Journal by Mohammed El-Erian titled Return of the Nervous Weekend. He wrote the article early in 2010. This was about a year after the stock market began recovering from the financial crisis in 2008-09. At the time, we were learning about issues with European banks stemming from Eurozone countries struggling to make payments on their government bonds. These issues seem like a distant memory as many of the fears at that time never materialized into major issues.

El-Erian was CEO of the asset manager PIMCO at the time, and today he serves as the Chief Economic Advisor to Allianz which is one of the largest insurance companies in the world. He opened his op-Ed with the following statement:

“With global financial markets volatile once again, we're back to what I call the "weekend policy watches." For many years, weekend policy watches were confined to struggling developing countries. But beginning in 2008, the phenomenon burst onto the American scene as government officials scrambled to contain the financial meltdown. It's hard to forget those "Sunday night specials"—long hours spent anxiously waiting to hear from Washington on topics like Bear Stearns, Fannie and Freddie and Lehman Brothers.”

This article has been in the back of my mind since I learned about issues at Silicon Valley Bank on Thursday which rapidly developed into the FDIC seizing the institution on Friday. As I’ve been watching the NCAA conference basketball tournaments with my kids and trying to stay on top of the rapidly developing banking situation, this weekend felt like the weekends during the financial crisis and the years that followed.

As I write this early Sunday afternoon, there are still many unknowns about how the Silicon Valley Bank situation will conclude. I believe this issue will remain isolated to this bank and possibly a few others based on what I’ve read so far.

Silicon Valley Bank had a niche business that focused on a specific type of customer - start-up and venture capital backed businesses. These businesses struggled in 2022. Couple this with what appears to be poor risk management at the bank, the social media era where information travels rapidly, electronic banking that allows money to move almost instantaneously between institutions, and we are witnessing a classic bank run in warp speed.

By the time you read this, the situation may be resolved and any spillover effects known. I expect this will stay isolated, but we may see volatility in the financial markets as investors digest a rapidly changing situation.

I suspect the events of the last few days will be significant for investors. The Federal Reserve has been aggressively raising interest rates to fight inflation. The second largest bank failure in the history of our country is going to force the Federal Reserve to decide between fighting inflation and stability of the financial system. With many of the decision makers at the Federal Reserve still remembering the trauma of the financial crisis, I believe they will choose financial stability.

Even if the Federal Reserve continues raising interest rates, I believe the situation with Silicon Valley Bank will cause them to be more measured and predictable than they have been over the last year. History provides ample evidence that the stock market can move higher despite the Federal Reserve increasing interest rates if they move slowly and predictably.

Earlier this month, Raymond James introduced an enhanced savings account that I am gradually sharing with clients when appropriate. The account offers a competitive interest rate and FDIC insurance coverage up to $50 million. I was excited when I learned we had a great solution for our clients’ cash. I never expected the substantial FDIC insurance coverage could be the most attractive feature.

If this weekend’s events have you concerned that you or your business are exposed without enough FDIC coverage, please let me know. We can discuss whether this new account or other short term investment options are appropriate for your needs.

Please let Corrie, Jen, or I know if you have concerns or questions we can address. Also, please share this with any friends, family, or business associates you think could benefit from this information. We would be happy to help with questions or concerns from the other people in your life that are important to you.

Any opinions are those of Michael Anania and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained here does not purport to be a complete description of the securities, markets, or developments referred to in this material.

Cash on deposit at FDIC-insured institutions through the Enhanced Savings Program offered by Raymond James Bank is insured by the FDIC up to $250,000 per insurable capacity per depository institution (bank), subject to applicable FDIC rules and limitations. The minimum deposit required to open an Enhanced Savings Program account is $100,000. The Enhanced Savings Program relies on the services of IntraFi Network, LLC for the placement of deposits at a network for third party FDIC-insured depository institutions. The current list of FDIC-insured depository institutions in the network is shown at https://www.intrafinetworkdeposits.com/find-intrafinetwork-deposits/ . Raymond James is not affiliated with IntraFi Network, LLC.