When doves cry.....and banks die....what's next for you and I?

The artist who was known simply as Prince, who passed away in 2016, is regarded by many as arguably one of the best music artists ever. The purple one had many, many hit records, including "When Doves Cry". As a child, I often asked myself very important questions. "When does a dove actually cry? And if it does cry, why would it matter what it sounded like?" At 42 years old today, I still don't believe I ever received answers to those questions.

"How can you just leave me standing, alone in a world that's so cold" Prince would sing in his classic baritone. That brings me to Friday March 10th where the news broke that Silicon Valley Bank, headquartered in Santa Clara, CA, had been shut down by regulators after a few days of runs on the bank by its depositors. I can hear SVB executives and board members reciting this line from the song to the Feds now. One of the largest bank failures in history right before our eyes on an ordinary Friday. It immediately became prime content on social media, especially on social audio sites. There was great comedy provided to me by people who have no clue how the banking system actually works, or had much money in one to begin with. Today it was announced that the federal government would essentially bail the bank out by ensuring customers of SVB will have access to all of their money tomorrow. Looks like no doves aka customers at SVB will cry for too long! All I could say at the time was "wow!" The things we'll spend money on in this country against the things we won't is astonishing and in some cases disheartening to say the least. But that's for another article, doves won't be the only ones crying then. Many in my circle over the last couple of days have asked me for my unbiased opinion on this entire situation around bank failures. They know I lived 2008 like many of you, both as an individual, as a real estate investor, and as a banker. I was a 27 year old at that time, in what seems like 75 years ago in business dog years given this now post pandemic and post George Floyd video environment. Fast forward 15 years later, I have a much better grasp on these things. Here is a summary of what I shared both on social audio, speaking in person, and on social media timelines:

- No depositor amnesty for SVB depositors: let SVB fully fail.

- FDIC should get out of the way & let whoever wants to acquire SVB to actually do the deal.

- Monday morning: Gov’t should increase FDIC insurance to $15M for all bank deposits. This prevents a run on other banks by unsophisticated and unknowledgeable consumers.??

Silicon Valley is pushing the idea that SVB depositors need to be rescued to prevent a run on other banks. Nope. If you want to prevent a run on other banks, increase the FDIC insurance. But SVB screwed up by utterly failing to take interest rate risk into account, in two ways - client concentration risk amongst startups and investing in interest rate-sensitive securities. So did the many startups who blithely did business with them. It’s not the U.S. taxpayer’s job to now coddle them now in my opinion.

This is not like 2008 where banks weren’t near as capitalized and were playing in the subprime and derivative space, which is a niche however more widespread than SVB being niched down to Silicon Valley tech startups. A run on the bank is asinine, people and their $243.67 checking account will be fine. For those with balances over the $250k FDIC threshold, consider diversifying those balances between multiple banks to get under the max, or structure the accounts properly with account owners if staying with one institution.

This all is a major reason I’m not very liquid. Cash in banks loses value over time. Cash in a wallet, pocket, or mattress loses even more. I don’t give financial advice, however people should consider tangible assets and turnkey viable businesses that cashflow as better cash shelters.

As a leader of a community development financial institution (CDFI), if I make uninformed and unintelligent decisions that adversely impact the organization there's no bailout or federal support coming to keep us afloat. This is also the case for virtually all small business around the country. So what's next for all of us? None of us truly know, no more than we know what it sounds like when doves cry. We came close to that answer last Friday. But like that hit song, we'll keep listening until we hopefully figure it out!

What are your thoughts on this topic of bank failures? Please comment and share your opinion! Also as a disclaimer......no doves were harmed in the writing of this article........

Ron serves as President of? River City Capital Investment ?in Memphis, TN. Since 2010 RCC, an affiliate of?Community LIFT?and certified CDFI nonprofit organization, has existed with a mission to accelerate shared prosperity and revitalization in underserved communities through the provision of capital in Memphis and Shelby County. You can support the work of RCC by visiting?rivercitycapital.org?and make a financial donation. His new e-book "Your Bankable Business" is available FREE there as well! Please subscribe to this newsletter so you can be notified of new articles by Ron! You can give Ron a call whenever he's live on the new Owwll app! Download it (Apple or Android) wherever you get your apps, use my code RB401971 to get $10 towards calling me or other experts on the app. I'll get $10 too, so we can chat it up!