Will interest rates be affected by reactions to recent bank runs?

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Published Date 3/13/2023

Bank failures haven’t made the news in quite a while. Those of us who have no money at risk at the two banking institutions that have been in the news recently still wonder, how can this happen when we all thought our banking system was streamlined and made almost fail-safe as a response to the 2008 financial crisis? And how will this bank run affect mortgage interest rates? It’s anybody’s ballgame at this point.

Columbus and Over Group’s Rachel Bakish explains how, just last week, Federal regulators assumed control of Silicon Valley Bank. Silicon Valley Bank (SVB) acquired a local banking institution, Boston Private, in 2022. Boston Private has been an active mortgage lender, particularly at the higher end of the market, for many years. And she poses the question — What happened to cause the bank to go from thriving to failing in under 48 hours?

“On Wednesday evening, SVB announced it needed to raise $2 billion after recent losses in the tech sector, the bank’s primary investment space,” she says. “There was an indication that startup clients were pulling out deposits and due to higher interest rates, securities had lost value.” She goes on to explain how these things together prompted sufficient enough fear in the bank’s investors and depositors that when the markets opened on Thursday morning, many pulled their holdings and started to withdraw their money. “This began a bank run,” she says. By Friday morning customers were calling and lining up outside of branches to get their money, like a scene out of the Christmas movie It’s a Wonderful Life. By noon, the Fed had taken over the bank and the reaction caused a wider sell-off in financial stocks, sparking fears that other banks may be at risk of failure as well.

This morning, The NewYork Times reports that the stunning takeover by regulators of two failing banks in the span of three days prompted President Biden to reassure Americans that the U.S. banking industry was safe, saying that customers’ deposits will “be there when you need them.”

While all this news is still fresh, Bakish says she finds it hard to believe that rates won’t be impacted in the coming days and weeks, and lists a few takeaways after the FDIC said it is now working to determine what portion of SVB deposits are insured to its $250,000 limits. First — if you are in process with a loan from SVB, definitely connect with your loan officer and your real estate advisor to determine if alternative plans need to be made. And secondly, if you have a loan with the bank, do not stop making payments.

Columbusandover, NYT, TBWS

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