Do You Have Bank Failure Fright?

1. Poor business management. When everything exploded in the 2008 financial crisis, loads of banks and money managers were engaging in the same subprime mortgage practices. The subsequent run on the banks left a lot of people looking for money that simply wasn't there. In these latest events, we're not seeing that. Specifically, with SVB, the bank waited too long to act on rising interest rates, so when things started looking shaky, they were caught flat-footed and without sufficient capital. Because banks invest the money people deposit, there's always an element of liquidity risk in the financial sector—SVB took things too far and waited too long to react.

2. Banks are still flush. It might feel like the whole banking system is teetering, but most of these institutions and big banks are doing just fine. They're making plenty of money, have plenty of money, and there's no indication we're building toward something similar to the mortgage crisis we saw 15 years ago (doesn't feel that long ago, huh?). If anything, these recent events will cause CEOs to tighten things up and double-check balance sheets out of an abundance of caution. I imagine more regulations will get proposed, and oversight will go up. Your money is still insured, and chances are your bank is safe.

3. There will always be peaks and valleys. Unfortunately, the inherent risk I mentioned in point #1 means things like this will happen. Usually, executives won't let balance sheets get so out of control that the company goes under, but it's not a sure thing. It's terrifying when it happens and serves as a reminder that banks are companies with shareholders and employees; as much as we'd like to believe these businesses are only there to serve us, that's not the reality of the situation.