Local advisor believes investors shouldn’t panic over bank failures

Friday, the government shut down Silicon Valley Bank in California, the 16th largest bank in the country. 

Sunday, another regional bank failed, Signature Bank in New York. 

They are the biggest banks to fail since Washington Mutual went down in 2008, a time when most Americans saw their 401k's decline somewhere around 40 percent. 

The recent failures now have many investors asking whether the industry is headed for another meltdown, and if so, how they should respond if at all. 

Elected leaders have tried to calm the concerns. 

“Americans can have confidence that the banking system is safe,” said President Joe Biden Monday. 

“Everything is fine, calm,” added New York Governor Kathy Hochul, “we want to make sure that there’s not a ripple effect, because if people are getting anxious and start withdrawing, then it creates instability.” 

However, the lines of customers outside bank branches and the plummeting prices of certain regional bank stocks suggest confidence is lacking. 

Financial advisor Brad Harvey of Harvey Investment Management believes Silicon Valley Bank made a bad decisions over the last few years when putting reserves into investments tied to low interest rates, without realizing the Federal Reserve was about to start raising rates to fight inflation. 

“They invested it in long-term treasuries, right before interest rates went up a lot,” he says, “I don't think what Silicon Valley Bank was doing was widespread, but I'm pretty sure they weren't the only ones." 

In this case though, other large banks aren't nearly as exposed to those same investments tied to low rates, so there shouldn't be a widespread meltdown. 

Still, Harvey believes at the very least, this financial shakeup will increase volatility in the market. 

“Today the stock markets were very high and very low, all in the same day, over 1200 points in changes in the DJIA.  That's usually a warning sign, and in many cases, it's a bad sign,” he explained. 

That doesn't mean, however, that investors should suddenly withdraw from the markets entirely. 

Harvey says the average 401k mutual fund, with minimal exposure to the banks impacted, shouldn't take a major hit, and investors shouldn't feel the need to take any immediate action.

He believes there might even be opportunities to take advantage of some stocks in quality companies selling at a discounted price due to the downturn, but it will likely be at least a few weeks before investors can really gauge the full impact of this financial shakeup. 

President Biden, meanwhile, says he plans to try to strengthen regulations to keep this from happening to other banks in the future. 

Harvey agrees that regulators could have done more to prevent the failures before it was too late. 

Click here to watch the complete market analysis Harvey gave to his viewers Monday morning on Youtube.