The Banking Crisis Continues: What to Expect

On today’s episode of THE FINANCIAL COMMUTE, host Chris Galeski welcomes back CEO of Morton Wealth, Jeff Sarti. They discuss recent bank runs as First Republic failed early last week, and PacWest confirmed last Thursday that it is exploring “strategic options” after its share price fell more than 50%. 

Jeff says banks have a fundamentally flawed business model as depositors can leave at any time. Chris also notes that many banks have been locked into long-term bonds or mortgages at low fixed interest rates while borrowing short-term loans themselves. Thus, when the Fed raised rates from zero to 5.25% in a matter of 12 months, banks had to pay a higher interest on the money they were borrowing but were not receiving much more interest from their fixed-rate bonds.

According to Jeff, many banks were too hopeful that rates would never rise and should be more intentional with risk management moving forward. Many people are wondering if more banks will collapse, but Jeff says no one can predict the future. Thankfully, Morton Wealth has always been mindful of the possibility that rates could rise and has prepared in advance by prioritizing resilient and diversified investments. 

Chris raises the point that if more regional banks fail and are bought by larger banks, there may be more opportunities in private lending as these bigger banks do not engage as much in creative financing or small business loans. Morton has been invested in private lending since 2009, and Jeff says he is already seeing private lenders charge higher rates. 

Disclosure:

Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your financial, legal, and tax professionals before implementing any transactions and/or strategies concerning your finances.