Banks Going Under — What Does That Indicate?

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This past week has been a roller coaster ride for our financial markets with Silicon Valley Bank (SVB) going under within a matter of 48 hours over the weekend before. Feds stepped in to take over while withdrawals were frozen. The 16th largest bank in the country going down sent shivers up the US economy’s spine! Over half the startups and VC’s in the US that bank with SVB were waiting with bated breath to watch the happenings unravel on Monday, March 13th, 2023. Their fate was closely tied to the money they had deposited with SVB.

To reflect on the past, the financial crisis of 2008 had left many banks in dire straits. Many went out of business, while others struggled to stay afloat with government assistance.

Banks can go bankrupt and there are ways you can spot the signs.

Banks can go bankrupt, but that doesn’t happen often. Banks are more resilient than other industries that are struggling to survive. The first sign that a bank is in trouble is when its deposits become less stable. This may be because customers are withdrawing their money or because the bank has been lending money out too aggressively and now needs cash on hand for bad loans or defaults on loans. In the current case, it was where the customers’ deposit money was tied in bonds the bank purchased with a future maturity and while the Feds raised interest rates to combat inflation over the months, the bonds lost value. And, when liquidity crunch happened when customers came seeking withdrawals, the bonds were liquidated at a loss. This created fear amongst bank customers who came in droves seeking withdrawals leading to the bank’s insolvency.

The second sign of distress comes when banks start losing customers or competing with each other for new ones by offering better rates or lower fees for services like checking accounts or mortgages (loans). When this happens, you’ll find yourself switching banks if yours doesn’t offer you what you want at a competitive price point compared with others in your area!

While the signs of bank distress are more subtle than those of other industries that are struggling to survive, they are still there.

Bankruptcy is a serious matter, but it doesn’t have to be the end of the world.

The signs are subtle:

• Your bank stops offering new services or products.
• Your account representative becomes less available.
• Your credit card interest rate increases suddenly.

The first sign that a bank is in trouble is when its deposits become less stable.

The first sign that a bank is in trouble is when its deposits become less stable. Deposits are the main source of income for banks, so if people start pulling out their money and putting it elsewhere, this can be devastating for the bank’s bottom line. This can happen because:

• The reputation of the bank has been damaged by negative news stories about them (for example, if there were allegations that they were involved with money laundering).
• People have lost faith in their ability to manage their finances effectively after seeing how bad things got at other financial institutions.
• Macroeconomic factors create a situation where customer withdrawals rise, deposits diminish and liquidity crisis with banks occurs.

Banks are dependent on deposits in order to stay open. If customers are withdrawing more money than usual and/or depositing less, this indicates that there is trouble ahead for the bank.

This can be due to customers taking out more money than usual or depositing less money into their accounts. Either way, it’s a bad sign for any financial institution and an indication that something needs to change immediately if you want your money back!

Banks with access to more deposits and capital than other banks should be able to continue operating without too much trouble even if their own business suffers setbacks.

The second sign is when banks start reporting losses in profits and see their asset values drop significantly.

This means that the bank’s customers are withdrawing more money than they’re putting in, which results in negative cash flow for the bank.

When this happens, the value of your investments will decline as well because they’re tied to the value of a company’s assets (such as real estate). If you own stocks or bonds from a company that has been affected by this phenomenon, you may lose some or all of your investment if there isn’t enough liquidity available on those markets to cover these losses.

It pays to keep an eye on what’s going on with your favorite bank.

If you’re not sure which banks are most likely to fail, there are some things you can look at to get a better idea. If a bank has more assets than liabilities, it should be fine. If it has fewer assets than liabilities, however, that could indicate financial trouble ahead. A healthy customer base is also important because it indicates stability in the community where they do business and manage a balance sheet. This will let you know if it has enough capital reserves to cover liabilities in case of bad loans or other losses. If not, then it may be time to find another place where your money can grow safely without being eaten up by fees!

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