March 13, 2023

Regional Bank Failures

If you have tuned in to financial news, or any news for that matter, you are likely aware of the turmoil which began last week in the regional banking sector. It started when Silvergate Capital, a central lender to the cryptocurrency industry, sought a $2.25 billion loan to shore up its balance sheet. The move raised questions about the bank’s financial strength and triggered $42 billion in withdrawals. A similar run occurred later in the week on Silicon Valley Bank, a larger bank that also had exposure to cryptocurrency firms but also held cash for nearly half of all US venture capital startups. Finally, over the weekend Signature Bank, another cryptocurrency-focused lender, was seized by banking regulators on similar concerns.

For our clients in a Tactical or All-Weather model, we had fortunately already raised significant cash before the bank news hit. Tactical models were already 87-100% allocated to liquid cash and cash equivalents and ultra-short duration government bonds while All-Weather models have 12-27% cash including their exposure to the Tactical Dividend and Momentum Fund, which is fully defensive in cash positions. We feel confident in our defensive posture with short-duration investments providing attractive yields, and will monitor the rapidly developing situation closely to deploy this capital at an opportune moment.

The Treasury, Fed, and FDIC issued a joint statement Sunday stating that Silicon Valley and Signature Bank customers would be made whole. Considering that FDIC insurance only covers $250,000 and many customers had far more on deposit at these banks, how this “bailout” will be implemented is uncertain. The Fed is also rolling out additional lending facilities designed to keep liquidity flowing.  We will certainly know more as the week goes on.

For months we were waiting for the impact of the Fed’s rate hikes to appear in the form of easing inflation, wondering if there would be adverse consequences to the steepest rate increases in history. Those unintended consequences have now reared their ugly head, in the form of a duration mismatch in which banks have locked up reserves in seemingly safe long-dated maturity government bonds that, due to the Fed’s rate moves, are less valuable on the secondary market and therefore less liquid to meet bank withdrawal needs. The Fed rate hikes have finally broken something, and they may need to be paused until the extent of the damage is determined.

For more information on Regional Bank Failures or have any questions, please email or call us at (833) 592-5252.

Thank you for the opportunity to be of service.


Sean Hanlon, CFP®, Linda Lemieux, and the entire Vestbridge Advisors Team.

Vestbridge Advisors, Inc. (“VB”) Is registered with the US Securities and Exchange Commission as a registered investment advisor with principal offices at 3393 Bargaintown Road, Egg Harbor Township, NJ. The information contained in this publication is meant for informational purposes only and does not constitute a direct offer to any individual or entity for the sale of securities or advisory services. Advisory advice is provided to individuals and entities in those states in which VB is authorized to do business. For more detailed information on VB, please visit our website at and view our Privacy Policy and our ADV2 Disclosure Document that contains relevant information about VB. Although VB is a fairly new organization, any references herein to the experience of the firm and its staff relates to prior experience with affiliated and nonaffiliated entities in similar investment related activities. All statistical information contained herein was believed to be the most current available at the time of the publishing of this publication.


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