SVB’s Failure and Your Investment Portfolio

Photo by JHVEPhoto

The swift collapse of Silicon Valley Bank (SVB) last week has reverberated through the banking industry, scaring regional bank customers and sharply lowering stock prices for this sector. So low, in fact, that on Monday and Tuesday many investors were buying bank stocks because they were on sale.

A Brief Summary of the Silicon Valley Bank Story

SVB received a large number of deposits in 2021, as their niche client base of startups received funding. At that time, interest rates were at a historical low, and SVB’s bank management chose a risky strategy of investing in long-term bonds; when interest rates eventually rose, as expected, the prices of those bonds fell. Borrowing short and lending long is a confidence game. Depositors may access their money at any time—but not everyone can access their money at the same time.

Last Wednesday, March 8, the SVB CEO announced that they lost money on this poor investment and his intention to raise capital to ease liquidity fears. But instead of calming customers, this action had the opposite effect. Why? Customers of SVB are startups, and VCs who invest in them stay on top of the news. Many VCs told their startup founders to pull their money out of SVB after the announcement, and their founders did so swiftly, via electronic transfer. Banking relies on confidence in the institution. When too many depositors withdraw at the same time, there’s not enough cash to go around, and you wind up with a high-tech version of the bank-run scene in “It’s a Wonderful Life.” On Friday, March 10, the FDIC seized the bank.

Then, on Sunday, March 12, the Federal Reserve and Treasury stepped in and promised to make all depositors whole, i.e., even those with more than $250K at SVB would get all their money back. This was a smart move that likely prevented failure-inducing runs on other banks. It also fosters healthy competition and low prices for all depositors, whether they’re with small banks or “too big to fail” institutions. Since the Treasury will get the bank’s assets, including those long-term bonds that they can hold to maturity and, thus, won’t take a loss, it’s not a bank bailout.

Confidence in the banking system and the stock market is crucial for a functioning economy. Investigators are looking into what went wrong, but it appears there was no fraud, and the bank assets are not missing.

What happened is a case of management error, or mismanagement. SVB’s directors are tainted forever, and the bank’s shareholders have been wiped out. But its depositors will be made whole.

How Does a Bank’s Stock Price Affect You?

While the price of many bank stocks has dropped significantly, due to contagion from the SVB situation, it’s important to note that a bank’s stock price is not the same thing as your deposits at that bank. Bank accounts are insured up to $250K per depositor, per insured bank, for each account ownership category. If you have more than this amount at any one bank, consider spreading your money across multiple banks, or working with your advisor to determine if you really need to hold that much cash.

Is This 2008 All Over Again?

We believe things are very different than they were in 2008. Back then, there was a liquidity crisis. Today, in the case of SVB, the actions of one bank’s management caused that bank to fail.

As to why other bank stocks have had their share prices hammered, including First Republic Bank—an institution that caters to high net-worth individuals, many in the Bay Area where SVB operated—we believe this is a result of contagion. Additionally, some VCs and entrepreneurs (who are neither banking nor wealth management experts) sounded a false alarm on Twitter about other small banks. But First Republic’s management does not appear to have placed bets on long-term bonds when interest rates were at a historical low and then sold the position at a loss, and its client base is more diversified, less concentrated in startups and tech.

Your Investment Portfolio

This past Monday, Founder Charles Schwab and CEO Walt Bettinger published Our Perspective on Recent Industry Events. In it, they discuss the $80 billion in borrowing capacity available to the Charles Schwab Corporation, and the FDIC insurance coverage for clients at Schwab Bank. We encourage you to read it.

Contrast Schwab’s more than 34 million diverse account holders with the customers at SVB, the majority of whom were involved in startups for another reassuring point of differentiation.

Does Your Portfolio Have Exposure to SVB or Signature Bank (SBNY)?

Dimensional portfolios are broadly diversified, and individual security weights in the portfolios are linked to market capitalization weights, which reflect the latest market assessment of the trade-offs between expected returns and risks. Broad diversification helps reduce idiosyncratic exposure to any single stock and can be critical to capturing the premiums associated with company size, relative price, and profitability. (Dimensional’s fixed income funds do not have any exposure to Silicon Valley Bank or Signature Bank.)

As of January 31, 2023, Dimensional’s US-domiciled domestic equity funds with direct holdings of SVB Financial and Signature Bank were as follows:

  • U.S. Core Equity 2 Portfolio (DFQTX)    0.10%
  • U.S. Core Equity 1 Portfolio (DFEOX)    0.08%
  • U.S. Core Equity 2 ETF (DFAC)    0.09%
  • U.S. Marketwide Value ETF (DFUV)    0.03%
  • US Targeted Value ETF (DFAT)  0.01%
  • US Large Cap Value Portfolio (DFLVX)  <0.01%

SVB Financial and Signature Bank have been closed and are not currently trading. The above funds are held in JLFranklin client portfolios, although no clients hold all of these funds and generally only one or two of the above funds are held by any one client, based on asset allocation.

Dimensional’s traders continue to monitor the situation and follow their normal, flexible investment approach that balances a daily consideration of expected returns, diversification, and risk.

Schwab Bank

Many of our clients hold cash at Schwab Bank. If you are unhappy with your bank or simply want to consolidate your banking relationship with your investment custodian, let us know and we can assist you in opening a Schwab Bank account. Schwab Bank offers checking, savings, credit card, and fee-rebate ATM services, and our team can assist if you run into any issues.

In Summary

We are not making any changes to portfolios as a result of SVB’s demise and the bank stock price drop. And we hope this note eases any anxiety you may be feeling. If you want to talk, please reach out.

xosotin chelseathông tin chuyển nhượngcâu lạc bộ bóng đá arsenalbóng đá atalantabundesligacầu thủ haalandUEFAevertonxosofutebol ao vivofutemaxmulticanaisonbetbóng đá world cupbóng đá inter milantin juventusbenzemala ligaclb leicester cityMUman citymessi lionelsalahnapolineymarpsgronaldoserie atottenhamvalenciaAS ROMALeverkusenac milanmbappenapolinewcastleaston villaliverpoolfa cupreal madridpremier leagueAjaxbao bong da247EPLbarcelonabournemouthaff cupasean footballbên lề sân cỏbáo bóng đá mớibóng đá cúp thế giớitin bóng đá ViệtUEFAbáo bóng đá việt namHuyền thoại bóng đágiải ngoại hạng anhSeagametap chi bong da the gioitin bong da lutrận đấu hôm nayviệt nam bóng đátin nong bong daBóng đá nữthể thao 7m24h bóng đábóng đá hôm naythe thao ngoai hang anhtin nhanh bóng đáphòng thay đồ bóng đábóng đá phủikèo nhà cái onbetbóng đá lu 2thông tin phòng thay đồthe thao vuaapp đánh lô đềdudoanxosoxổ số giải đặc biệthôm nay xổ sốkèo đẹp hôm nayketquaxosokq xskqxsmnsoi cầu ba miềnsoi cau thong kesxkt hôm naythế giới xổ sốxổ số 24hxo.soxoso3mienxo so ba mienxoso dac bietxosodientoanxổ số dự đoánvé số chiều xổxoso ket quaxosokienthietxoso kq hôm nayxoso ktxổ số megaxổ số mới nhất hôm nayxoso truc tiepxoso ViệtSX3MIENxs dự đoánxs mien bac hom nayxs miên namxsmientrungxsmn thu 7con số may mắn hôm nayKQXS 3 miền Bắc Trung Nam Nhanhdự đoán xổ số 3 miềndò vé sốdu doan xo so hom nayket qua xo xoket qua xo so.vntrúng thưởng xo sokq xoso trực tiếpket qua xskqxs 247số miền nams0x0 mienbacxosobamien hôm naysố đẹp hôm naysố đẹp trực tuyếnnuôi số đẹpxo so hom quaxoso ketquaxstruc tiep hom nayxổ số kiến thiết trực tiếpxổ số kq hôm nayso xo kq trực tuyenkết quả xổ số miền bắc trực tiếpxo so miền namxổ số miền nam trực tiếptrực tiếp xổ số hôm nayket wa xsKQ XOSOxoso onlinexo so truc tiep hom nayxsttso mien bac trong ngàyKQXS3Msố so mien bacdu doan xo so onlinedu doan cau loxổ số kenokqxs vnKQXOSOKQXS hôm naytrực tiếp kết quả xổ số ba miềncap lo dep nhat hom naysoi cầu chuẩn hôm nayso ket qua xo soXem kết quả xổ số nhanh nhấtSX3MIENXSMB chủ nhậtKQXSMNkết quả mở giải trực tuyếnGiờ vàng chốt số OnlineĐánh Đề Con Gìdò số miền namdò vé số hôm nayso mo so debach thủ lô đẹp nhất hôm naycầu đề hôm naykết quả xổ số kiến thiết toàn quốccau dep 88xsmb rong bach kimket qua xs 2023dự đoán xổ số hàng ngàyBạch thủ đề miền BắcSoi Cầu MB thần tàisoi cau vip 247soi cầu tốtsoi cầu miễn phísoi cau mb vipxsmb hom nayxs vietlottxsmn hôm naycầu lô đẹpthống kê lô kép xổ số miền Bắcquay thử xsmnxổ số thần tàiQuay thử XSMTxổ số chiều nayxo so mien nam hom nayweb đánh lô đề trực tuyến uy tínKQXS hôm nayxsmb ngày hôm nayXSMT chủ nhậtxổ số Power 6/55KQXS A trúng roycao thủ chốt sốbảng xổ số đặc biệtsoi cầu 247 vipsoi cầu wap 666Soi cầu miễn phí 888 VIPSoi Cau Chuan MBđộc thủ desố miền bắcthần tài cho sốKết quả xổ số thần tàiXem trực tiếp xổ sốXIN SỐ THẦN TÀI THỔ ĐỊACầu lô số đẹplô đẹp vip 24hsoi cầu miễn phí 888xổ số kiến thiết chiều nayXSMN thứ 7 hàng tuầnKết quả Xổ số Hồ Chí Minhnhà cái xổ số Việt NamXổ Số Đại PhátXổ số mới nhất Hôm Nayso xo mb hom nayxxmb88quay thu mbXo so Minh ChinhXS Minh Ngọc trực tiếp hôm nayXSMN 88XSTDxs than taixổ số UY TIN NHẤTxs vietlott 88SOI CẦU SIÊU CHUẨNSoiCauVietlô đẹp hôm nay vipket qua so xo hom naykqxsmb 30 ngàydự đoán xổ số 3 miềnSoi cầu 3 càng chuẩn xácbạch thủ lônuoi lo chuanbắt lô chuẩn theo ngàykq xo-solô 3 càngnuôi lô đề siêu vipcầu Lô Xiên XSMBđề về bao nhiêuSoi cầu x3xổ số kiến thiết ngày hôm nayquay thử xsmttruc tiep kết quả sxmntrực tiếp miền bắckết quả xổ số chấm vnbảng xs đặc biệt năm 2023soi cau xsmbxổ số hà nội hôm naysxmtxsmt hôm nayxs truc tiep mbketqua xo so onlinekqxs onlinexo số hôm nayXS3MTin xs hôm nayxsmn thu2XSMN hom nayxổ số miền bắc trực tiếp hôm naySO XOxsmbsxmn hôm nay188betlink188 xo sosoi cầu vip 88lô tô việtsoi lô việtXS247xs ba miềnchốt lô đẹp nhất hôm naychốt số xsmbCHƠI LÔ TÔsoi cau mn hom naychốt lô chuẩndu doan sxmtdự đoán xổ số onlinerồng bạch kim chốt 3 càng miễn phí hôm naythống kê lô gan miền bắcdàn đề lôCầu Kèo Đặc Biệtchốt cầu may mắnkết quả xổ số miền bắc hômSoi cầu vàng 777thẻ bài onlinedu doan mn 888soi cầu miền nam vipsoi cầu mt vipdàn de hôm nay7 cao thủ chốt sốsoi cau mien phi 7777 cao thủ chốt số nức tiếng3 càng miền bắcrồng bạch kim 777dàn de bất bạion newsddxsmn188betw88w88789bettf88sin88suvipsunwintf88five8812betsv88vn88Top 10 nhà cái uy tínsky88iwinlucky88nhacaisin88oxbetm88vn88w88789betiwinf8betrio66rio66lucky88oxbetvn88188bet789betMay-88five88one88sin88bk88xbetoxbetMU88188BETSV88RIO66ONBET88188betM88M88SV88Jun-68Jun-88one88iwinv9betw388OXBETw388w388onbetonbetonbetonbet88onbet88onbet88onbet88onbetonbetonbetonbetqh88mu88Nhà cái uy tínpog79vp777vp777vipbetvipbetuk88uk88typhu88typhu88tk88tk88sm66sm66me88me888live8live8livesm66me88win798livesm66me88win79pog79pog79vp777vp777uk88uk88tk88tk88luck8luck8kingbet86kingbet86k188k188hr99hr99123b8xbetvnvipbetsv66zbettaisunwin-vntyphu88vn138vwinvwinvi68ee881xbetrio66zbetvn138i9betvipfi88clubcf68onbet88ee88typhu88onbetonbetkhuyenmai12bet-moblie12betmoblietaimienphi247vi68clupcf68clupvipbeti9betqh88onb123onbefsoi cầunổ hũbắn cáđá gàđá gàgame bàicasinosoi cầuxóc đĩagame bàigiải mã giấc mơbầu cuaslot gamecasinonổ hủdàn đềBắn cácasinodàn đềnổ hũtài xỉuslot gamecasinobắn cáđá gàgame bàithể thaogame bàisoi cầukqsssoi cầucờ tướngbắn cágame bàixóc đĩaAG百家乐AG百家乐AG真人AG真人爱游戏华体会华体会im体育kok体育开云体育开云体育开云体育乐鱼体育乐鱼体育欧宝体育ob体育亚博体育亚博体育亚博体育亚博体育亚博体育亚博体育开云体育开云体育棋牌棋牌沙巴体育买球平台新葡京娱乐开云体育mu88qh88