Broker Check

Bank Closures Explained

March 13, 2023


In their latest commentary, the Cetera Investment Management Team explains the two California bank closures. Unlike 2008, these were liquidity events and not solvency events. These banks were unique in that their customer bases were not diversified and more sensitive to interest rates. 

  • These two banks served a very niche client base that is not representative of most other banks.
  • The larger bank’s clients were predominantly start-up companies and venture capital companies.
  • The smaller bank’s customers were largely customers in the cryptocurrency business.

The customer bases of these banks were not diversified, and their customers relied heavily on low interest rates. At low interest rates, entrepreneurs can borrow money to start new companies. With the Fed raising interest rates at an unprecedented rate, start-ups (which may not be net cash flow positive) had to use their existing cash balances to pay
rents and salaries as new investment capital dried up and borrowing costs rose. Since these banks’ customer bases were not diversified, their customers were facing similar challenges simultaneously and needed their money at the same time, causing a run on the banks. This is what caused the banks to close.

Click below to read the full commentary.

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As always, please reach out to the office if you have any questions.