1. Bank panics are the financial equivalent of yelling “fire” in a crowded theater.

People don’t think to judge whether a fire is happening and where it might be; they just head for the exits. Bank panics are the same. Investors don’t wait for context; they sell first and ask questions later. Bank panics develop quickly and usually cause significant short-term damage to portfolio values. Historically, portfolio values have recovered in short order.

2. The current US regional bank panic is a liquidity issue not a solvency issue making it much different than 2008/2009.

Fifteen years ago, banks lent money to homeowners who could not service their debt (i.e., solvency issue). This time around, SVB used demand deposits to buy longer dated US Treasury bonds (i.e., liquidity issue). While SVB did not take credit risk, they mismatched the term of their liabilities (short term) with the supporting investment (medium term). When depositors withdrew large cash balances, SVB had to sell bonds at a loss rather than realizing par at maturity— a classic banking mistake that SVB should have never made.

3. Mega US Banks (JPMorgan, BankAmerica, Wells Fargo etc.) will eventually takeover most, if not all, regional banks making US domestic banking look more like Canada or the UK.

Most of the larger regional banks have terrific local franchises and will make great additions to the client portfolios of the US majors. Politicians and regulators are unlikely to discourage this trend, although it will ultimately reduce competition.

4. Disregard headlines that fret over unrealized bond portfolio losses.

Rising interest rates in 2022, depressed the price of medium and long-term Treasury bonds held by banks. However, the great thing about Treasury bonds is that investors are guaranteed that they will get their money back when the bonds mature. All major global banks have sophisticated asset/liability management tools that ensure that the illiquidity that sank SVB does not happen to them.

5. Bank Panics present attractive buying opportunities.

In the 12 months that followed the 2008/09 bank crisis and the 2020 (Covid) bank stock selloff, the US bank stock index rose by some 75% off its lows. We see no reason why banks will not experience a similar recovery.