How to protect YOUR cash from banking Armageddon: Shark Tank star Kevin O'Leary warns THOUSANDS more 'radioactive' regional banks could fail like SVB - you'll be amazed how simple it is to be safe
Regional banks are doomed.
That's not necessarily a bad thing… if you're prepared for it.
It's been almost a year since Silicon Valley Bank (SVB) collapsed in March – the victim of idiotic management. But the sobering reality is the small banking crisis is far from over.
In the next three to five years, thousands more regional institutions will fail. That's why I don't have a dime saved or invested in a single one.
Don't panic! But also don't ignore a historic change in the American banking system.
Here are my top five tips for protecting your family's savings and investments in a rapidly changing world.
1. HOW TO KNOW IF YOUR BANK IS SAFE
Unless you're an expert at analyzing balance sheets, you'll never know if your bank is teetering on the brink of collapse.
But here's one dead giveaway: the minute you read about a regional bank in the news, its money starts to flow out its doors – and you can start the countdown to when its reserves will be zero.
SVB was done in by incompetent bank executives, who didn't know how to manage risk.
When interest rates skyrocketed and loans dried up, the banks' Silicon Valley tech clients drew down their accounts to keep their companies afloat.
That wouldn't have been a problem if SVB's managers had diversified the bank's investments, but they hadn't.
Rising interest rates wiped out the $1.8 billion that SVB had invested in U.S. Treasury Bonds.
And as news of those losses spread, desperate customers scrambled to withdraw their deposits - drying up what little reserves SVB had left.
If your bank is in the news, be concerned.
Today, the dire issues facing these small banks are more than just high interest rates.
Here's the other ticking time bomb that you need to know about.
Regional banks are doomed. That's not necessarily a bad thing… if you're prepared for it.
2. BEWARE THE COMING REAL ESTATE IMPLOSION
New York Community Bancorp (NYCB) made more headlines this week after reporting a surprise loss of $252 million on its commercial real estate loan portfolio in the fourth quarter of 2023 alone.
Mark my words… NYCB will be wiped out within three months.
Once again, incompetent managers, who failed to cope with risks, are to blame. And there are more of these witless bankers out there!
Banks, like NYCB, wrote big loans when interest rates were low.
Now, after the COVID pandemic and the remote work phenomena left many commercial spaces vacant, tenantless property owners can't pay their bills.
They also can't refinance in this high-interest rate environment.
So, they default, leaving the banks with real estate that is far less valuable than it once was.
Considering that small firms reportedly hold nearly 70 percent of $2.7 trillion in outstanding commercial real estate loans, it's no surprise that Federal Reserve Chairman Jerome Powell recently warned the collapse of regional banking was a 'problem we'll be working on for years.'
Start moving your money now.
Rising interest rates wiped out the $1.8 billion that SVB had invested in U.S. Treasury Bonds. And as news of those losses spread, desperate customers scrambled to withdraw their deposits - drying up what little reserves SVB had left. (Above) A bank worker is seen telling customers that the Silicon Valley Bank (SVB) headquarters is closed
3. GO WITH THE BIG BOYS
A century ago, a system of regional banks made good sense.
Neighborhood bankers lived in the communities where they served their local businesses.
For better or for worse, those days are long gone.
Today, 97 percent of all banking in America is done online. It's part of a global trend – as small banks go away, and big banks grow in size and stability.
Look at countries like Switzerland, Canada, and the UK. Their banking landscapes are dominated by just a few highly regulated and well-functioning national institutions.
That'll soon be the norm in America too.
Put your money in national operations like JPMorgan Chase, Bank of America, Citigroup and others.
These too-big-too-fail institutions are the safest places for your dollars.
And there's an additional safeguard to take advantage of.
New York Community Bancorp (NYCB) made more headlines this week after reporting a surprise loss of $252 million on its commercial real estate loan portfolio in the fourth quarter of 2023 alone.
4. DIVERSITY OR DIE (OR GET DIVORCED)
The rule that absolutely everyone – from the billionaire to the average income earner – must follow is don't trust more than $250,000 to any one single bank, if you're lucky enough to have that much money.
The Federal Deposit Insurance Corporation (FDIC) guarantees every bank deposit in America (within 1-2 business days) up to $250,000 in the event of a bank failure.
Above that threshold, you're on your own – so spread your money around.
If you're one of the many millions of small business owners, who make up the backbone of the American economy, this is even more important.
Even though your money is protected, it may take several days for you to get paid back.
Silicon Valley Bank failed on a Friday and some customers weren't made whole until the following Monday and Tuesday.
Anyone who needs to make payroll knows how stressful that can be.
While you're at it - keep your finances separate from your spouse!
FDIC insurance technically covers couples with the same bank up to $250,000 each, so a single joint account can be insured up to $500,000.
I don't recommend this route.
My advice to married couples is never to give up their individual financial identities.
I've seen too many marriages destroyed by one partner who can't manage their finances. Every married couple should maintain one joint account to pay all of their shared expenses as well as independent accounts at separate banks.
Finally, if regional banks are too risky for your savings… they're far too risky for your investments.
In the next three to five years, thousands more regional institutions will fail. That's why I don't have a dime saved or invested in a single one. (Above) First Republic Bank in Brentwood, California as customers withdraw their money on March 11, 2023
5. AVOID RADIOACTIVE INVESTMENTS
Equities in regional banks are radioactive waste.
As mentioned above, many specialize in the collapsing commercial real estate market, while others are engaged in risky loans, like credit cards.
That puts them at risk if a large number of cardholders fail to make their payments.
At a time when credit card debt tops $1 trillion for the first time in history, this is not a bet to make.
Even the large banks are not great investments.
As regional banks inevitably start to fail, and the FDIC insurance system is stressed, even the big banks will pay the price.
The FDIC scheme is funded by insurance premiums that are paid by all banks, regardless of size.
The bottom line – regional banks are dinosaurs.
Their time is over.
Don't get caught investing or saving in a bank that's too-small-NOT-to-fail.
