The news has been full of stories about the collapse of the Silicon Valley Bank (SVB) and Signature Bank in the United States and Credit Suisse in Europe. While these events have created jitters in the financial market, I think it’s important to note that the Canadian banking sector has shown remarkable stability in the same way it did during the American banking crisis of 2008-09. Most commentators here north of the 49th parallel (figuratively speaking) have expressed confidence in the ongoing stability of our banks and credit unions.
So why now? What happened at Silicon Valley Bank?
Most of what I have read and heard points to the fact that SVB, chose to invest its resources in low-yield bonds that lost their value as interest rates rose. Over time this meant that the overall value in the direct control of the bank became noticeably smaller.
As the name would suggest, most of SVBs clients were start-up companies involved in the tech sector. The tech sector right now is taking a beating on its own as big players like Google and Amazon announce significant layoffs - something that most of us probably never could have predicted even a year ago. I mean, after all, didn’t we all sort of assume that these firms were market titans that could do no wrong as we moved boldly forward into the future? Alas, not so much.
So here you have a bank that is heavily invested in financial products that are taking a beating in a high-interest marketplace, catering to a sector that is being battered itself. And on top of that, many commentators have noted how the changes to banking regulations under President Trump in 2018 meant that there was less regulatory oversight in the industry. All fine in good times, but when things get shaky, not so much.
Do I need to be concerned as a Canadian?
Let’s indulge ourselves in a moment of smug Canadian superiority and cockiness. The Canadian banking sector is one of the most stable in the world. While some might like to complain that we’re boring, I would suggest to you that is one of those times when boring is good.
Yes, the world economy is taking a beating in the wake of this banking crisis. The Canadian economy is going to feel the pain that this crisis has triggered. The banking crisis, along with the Ukraine war, ongoing inflation, an increasingly unstable cryptocurrency market, and continued difficulties result from COVID, are all serving to batter our economic outlook. But it certainly looks like Canada’s banks remain safe. And there is nothing to suggest anything else.
Where do we go from here?
One of the lessons I have tried to hold onto as I continue to watch the stock market and the general economic outlook is that we need to always be re-evaluating our investments while staying calm in the face of frightening short-term factors.
Making sure that our investments are well-diversified helps us to weather storms like this. And accepting the fact that what we are seeing today is not necessarily what we will see a year from now, five years from now, much less ten years from now.
So, reach out to me if you want to spend some time looking at your investments or your investment goals – short-term and long-term. Together we can figure out what works for you – calmly and intelligently. As always, you can visit email me at [email protected] or call me at (519) 279-0186.
And until then, just take a deep breath. We’ll get through this together.
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