Silicon Valley Bank: How to Talk With Your Clients
Everyone has heard about the recent announcement from Silicon Valley Bank about the bank’s closing. If you are wondering how best to talk with your clients about it, you’re not alone. The news has created uncertainty in the minds of many industry professionals and consumers, so today I’m here to offer some guidance on how to approach this topic with empathy, understanding and guidance. In this blog post, I’ll walk through how SVB’s closing compares to 2008, Federal Reserve stress tests, what type of lending SVB (and Signature Bank) did, how clients servicers may change, and why most consumers will not be affected.
This is not 2008, here’s why:
The closing of SVB and Signature Bank may sound alarm bells, but it shouldn’t cause the same level of panic as it did in 2008. While these meltdowns are serious, they cannot be compared to what happened 13 years ago. In 2008, homebuyers were dangerously overleveraged and many were linked with subprime mortgages and other loose qualification requirements – making the crash inevitable. Fast-forward to today, things look much rosier: consumer credit scores, mortgage requirements and average homeowner equity are much different today. When we Silicon Valley Bank to larger banks, SVB had close to $211 billion in assets in December 2022, while Bank of America was sitting around $3 Trillion at the same time.
Federal Reserve Stress Tests
Consumers and Agents alike are all too familiar with economic shifts – 2008 was a reminder of the power of the unknown. The Federal Reserve continues to run tests to anticipate any potential downturns and what the fallout could be should they become reality. Thankfully, their most recent stress test showed that some of Wall Street’s largest banks wouldn’t fail if a deep recession were to happen — instead, they’re well-positioned to sustain long periods of high unemployment rates, stock market losses, and other financial hardship. This is not something that is mentioned often and is a good talking point with your clients.
SVB and Signature Bank were Niche Banks
It’s been a tumultuous year with the news of SVB and Signature bank each folding in recent weeks fresh out of the pandemic. While this marks a huge setback for these two specialized banks, the effects may be contained due to their unique client lists. As they were focused on PropTech companies and Crypto at large, their losses will likely have little spill-over into the mainstream consumer markets- with luck, the blowback from such losses will stay contained.
Consumers May Experience a Change in Mortgage Servicing
Many of SVB’s assets were real estate holdings, both commercial and residential. So, how does this affect our clients? I’m glad you asked! This could cause some shuffling around of mortgages and who is servicing them. This is a GREAT opportunity to reach out to past clients, to connect and tell them to be on the lookout for a possible change in their mortgage servicer. And you might as well sneak in a unsolicited CMA to their inbox right before you call!
This Shouldn’t Cause a Change in Plans for Most Consumers.
Unless they were employed at SVB, Signature, or one of the companies they were invested in – consumers will likely not experience much, or any of the fallout from these banks closing down. This may bring back uncomfortable memories from 2008, however as we have covered above – this is not the same market or the same type of banks melting down.
As Real Estate Agents, we are in a unique position, we are not just a trusted source to help clients buy and sell real estate – but to also connect them with professionals that can walk them through all different types of financial scenarios. If you don’t have a book of referrals to advisors, accountants, tax attorneys etc. you need to build that out. If you do, this is a great time to (hang on with me, I know this is crazy) CALL your clients and see how they are interpreting this news, perhaps they finally do want to talk to your trusted financial planner, you won’t know how this news is affecting them, if you don’t call.