Page 12 - May 2023 Issue.indd

DOLLARS AND SENSE by Tolbert Rowe

Recent Bank Failures

Last month I made a prediction that money. The same cannot be said for sole purpose of generating additional
we would begin to see a decline in stockholders and unsecured creditors. revenue. Banks are operating effi ciently
inflation numbers over the next several when the income they receive from

Each of these banks’ ability to operate
months because at this time last year loans and investments is greater than
properly and profitably was impacted

prices jumped insanely due to pandemic the interest that they pay depositors on

by factors that significantly impacted on
shutdowns and supply chain issues. True their accounts. Non-interest-bearing
their liquidity and depositors’ ability to
to my prediction inflation in March checking accounts are the cheapest
access their money.
came in 5% higher than March of 2022, funds a bank can raise.

which was lower than 6% inflation in DISCLAIMER
February. In addition, month to month Some may find the rest of this article As a normal course of business many
inflation was only up .1% from February. boring, regardless of how fascinating banks invest in US Treasury securities

for safety purposes. The United States

I have tried to make the subject jump
It is unlikely that this good news will Treasury has never defaulted on or failed

off the page. The executive summary of
dampen the Fed’s resolve for increasing to pay an obligation like a Treasury bill
the rest of this article is “do not run to
rates to lower inflation. Th e economy or bond. This will become a political

the bank and withdraw all your money
added 236,000 new jobs in March which issue in the months ahead as the political
because you fear the bank is going to

were offset by an increase of 239,000 new hacks in Congress hunker down in their
fail and you will never see your money
unemployment applications showing tribal Republican and Democrat forts
again. If you have already withdrawn
no real net gain in employment, but the and lob grenades at each other about

your money and stuffed it under your
unemployment rate dropped to 3.5%. raising the debt ceiling or else, but this
mattress, go, get it, and take it back to
The unemployment rate has been at is fodder for another article.
the bank.” Your money is safe. Turn to
or below 4% since March of 2018 and
the word search page and relax. When a bank purchases or invests
presents the biggest obstacle to moving in treasuries they create an asset for

the inflation number lower. CONTINUE IF YOU DARE
the bank, and they must classify that
Customers deposit money with a bank
In addition to low unemployment security as either “available for sale”
with the understanding that the bank
the Fed now must contend with the or “held to maturity” for accounting
is holding those funds in trust until the
impact of the second and third largest purposes. How they are classifi ed can
customer wants to withdraw some or all
bank failures in US history. The only influence the income of the bank.

of them in accordance with the terms
bank failure bigger than Silicon Valley

and conditions of the account. A security that is classified as “held to
Bank (SVB) and Signature Bank was
maturity” is shown at the original cost
Washington Mutual in 2008. The The bank uses these deposits to fund
immediate impact of these bank failures loans to individuals and businesses. on the balance sheet. And as such it
has been dealt with and no depositor They also invest funds that are not is assumed the bank/owner will not
with accounts in these banks has lost being used to fund loans to borrowers sell it prior to maturity. A $100,000
10-year treasury bill at 2% will show
in several types of investments for the
as an asset valued at $100,000 until it
reaches maturity in 10 years. Changes
in the yield of 10-year treasuries have no
“Your Mortgage Consultant Since 1985”
impact on the $100,000 value.
Purchase or Refinance Think of a held to maturity security the

same as a mutual fund or stock in your
IRA or 401k that you do not intend to
access until you retire. The value may

go up and down over time, which does
not affect your income because you are

115 E Dover St. Ste 3 - Easton, MD leaving the funds in the account. You
tolbert@baycapitalmortgage.com C. Tolbert Rowe, may have paid $100 for a share of stock
www.baycapitalmortgage.com NMLS Vice President/Lending or a mutual fund whose current value
182844
may have dropped to $90. If you don’t
410-819-3005 / cell 410-310-3520 sell your share, you haven’t lost anything
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