Bank Failure News of March 2023

bank failure news of march 2023

Date: March 14, 2023

From: MONTAG Staff

MONTAG staff worked through the weekend to determine possible fallout and client impact from the failure of Silicon Valley Bank (Ticker: SIVB). We want to share with clients and others what we consider our most pertinent takeaways. This summary covers money market funds, bonds, and some financial industry stocks.  We are not able to address every specific circumstance, so please check with your financial advisor directly with any questions or concerns.

  • Custodians: Our client assets are held at two of the largest and strongest custodians in the industry, Fidelity and Schwab. Importantly, assets held at these companies are separated from & unaffected from any financial issues the custodian may experience. Schwab, Fidelity and other such firms have successfully navigated through several economic cycles in the past. As happened in 2008, Schwab’s publicly-traded stock is currently under some stress.  Today, this stress relates to its banking operation, quite separate and distinct from its custodian business. We have no serious concerns that client assets are at any risk due to pressure being put on Schwab’s stock. Fidelity is a privately-held company which does not face the same market-based pressures. Similar to Schwab, any banking business conducted by Fidelity is separate from its service as a custodian for client assets.
  • Money Market Funds: We are very careful about the money market funds used at MONTAG. We are very attentive to the credit quality of these funds. In March of 2020, early in the pandemic crisis, we moved the vast majority of client assets into money market funds that own only bonds issued by the U.S. Treasury. While clients of ours do own money market funds not in this category, we currently don’t anticipate any losses in these funds as a result of the SIVB failure. 
  • Bonds: MONTAG’s allocation and strategy for fixed income is for this asset class to protect and conserve capital. As a general practice, we aim to buy high quality bonds for clients. A review of all bonds held by clients has not yet identified any directly affected by the fallout from the SIVB failure.   
  • Financial Stocks:  Since news of SIVB broke several business days ago, bank stocks have fallen dramatically.  A concern is that the industry will need to raise capital by issuing equity because of declining asset values, and subsequent financial performance will be lower going forward.  The potential need for capital stems from the growth of deposits during 2020, 2021, and into 2022. 

So, as we look back, what happened to cause this?

Recently SIVB faced serious challenges as deposits surged (after the pandemic) and the federal policy response resulted in the technology sector being flush with cash. During this period, deposits at SIVB grew by nearly $200 billion as of March 2022, up from more than $60 billion two years earlier.  The bank invested this new cash in bonds, as opposed to growing loans. In fact, the bank ended last year with 57% of its assets in bonds.  For comparison most banks hold around 24% of assets in bonds.


All of these bonds were bought at historically low rates.  As the Fed started to raise rates from 0% in March 2020 to 4.75% now, the bonds began to fall in value, which is exactly how the bond market works.  This is not a deviation from historical patterns. 


Because SIVB invested much of their cash longer-dated bonds, it risked larger losses if it had to liquidate its securities portfolio to meet withdrawals.  The longer the bond duration, the greater the turbulence of the bond’s daily value. This turbulence is amplified when rates are rising as rapidly as has occurred in the last year.


At the same time, venture capital funding in the tech sector slowed over the past year, meaning SIVB’s deposit base centered on tech companies who began withdrawing more funds and doing so faster than anticipated, lowering what was held in the bank’s deposits. (Recall inflation has been in the news too.) Startups withdrew their money more aggressively (encouraged by some visible technology investors) and sparked a classic bank run that ended with the FDIC stepping in on Friday. So, in the end, the combination of withdrawals and dropping of the bonds’ values held by the bank caused this “run” and the bank’s failure. 


This was what caused the news Sunday evening (March 13), when the Federal Reserve announced that all bank deposits across the industry would be covered by insurance.  This removes the risk of loss to depositors, but it was too late for SIVB which had already been placed in receivership by the government.

Questions to Consider

Will depositors at other banks run also?

There is some risk that additional bank runs occur at medium and smaller sized banks.  Most every bank purchased bonds with their “outsized deposit” growth during the low yield periods of 2020, 2021, and early 2022, prior to the Federal Reserve starting to raise rates.  The risk of depositors fleeing too quickly in this age of internet banking is real and new.  The Federal Reserve announced a lending facility late on Sunday March 13 that will allow banks to pledge securities at face value in exchange for cash.  This significantly reduces the concern that banks will not have cash on hand to meet depositors needs and shrinks the likelihood of nationwide bank runs.

Differences in size, asset base and customer profile will matter a lot. In many ways, the mega-banks hold considerable competitive advantages in this regard because we can assume the Federal government cannot afford to let them fail. While we have identified only a few financial stocks held within our client base that are being directly affected by all of this, clients with any bank holdings should contact their portfolio manager to discuss the risks and alternatives.

Are my money markets safe?

The default choice of money market funds held at MONTAG invest directly in U.S. Treasury bonds.  These bonds are considered the highest quality in the world and easily permit withdrawals, ensuring cash is available when needed.  For people who do not use these money market funds, contact your financial advisor; many are very safe and well-chosen though they may hold somewhat different securities. 

Are my bonds safe?

Having reviewed all bonds held at MONTAG, we found no bonds that appeared impacted significantly by the SIVB failure. Smaller, more regional bank bonds would have been the most likely to experience problems, but to date, no portfolios appear to hold any bonds that are significantly impacted.  

Do I own bank equity that’s at risk from this?

Banks smaller than large multi-national brand name institutions are at differing degrees of risk of a “bank run” but the risks are fairly low for the majority of all banks in our estimation. Investors that own medium or smaller banks should contact their financial advisor to discuss the risks of those equities.   

Does FDIC insurance cover my bank deposits?

As of Sunday March 13, FDIC insurance covers all deposits at all banks. The Fed confirmed this with their announcement late on March 13. 

Is there anything else I can do?

While we are not particularly concerned at this time about the overall health of the banking industry, should you have deposits in excess of $250,000 with a bank, we would like to discuss potential options with you. We can offer many strong options not always available in the banking community. 


The information provided is for illustration purposes only.  It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action to be taken. These analyses have been produced using data provided by third parties and/or public sources. While the information is believed to be reliable, its accuracy cannot be guaranteed.




    At MONTAG, we do things differently. We‘ve been a family-run business for nearly 40 years, and we still believe that our clients are best served by treating them as part of that family. We take the time to get to know you – what you’ve done to build your net worth, your investment philosophy, your financial questions and fears, and above all, your financial hopes. Every single client has their own unique story — a story that deserves more than a conversation with an anonymous voice. Contact our Business Development team today by calling 404.522.5774 or emailing [email protected] to get in touch.