The financial landscape was recently rattled with the collapse of Silicon Valley Bank (SVB), leading many to speculate whether this could ignite a widespread financial crisis. However, voices from the financial sector, such as Lucas Noble of the Noble Financial Group, assure the public that this event is unlikely to cause such an economic fallout. Here’s why.
Today’s regulatory framework has fortified its guard since the financial crisis of 2008. Regulations have been tightened significantly to prevent such catastrophes.
“We survived 2008 and 2009, where there was a lot less regulation. Since then they’ve tightened regulation considerably,” affirms Noble.
The swift intervention by the Federal Deposit Insurance Corporation (FDIC) played a crucial role in containing the fallout. Noble commends their rapid response.
“In the case of Silicon Valley Bank, the FDIC stepped in incredibly fast, they took measures that were incredibly appropriate,” he says.
This timely action prevented the repercussions of SVB’s collapse from rippling out to the broader financial system.
The average investor was largely shielded from the effects of SVB’s demise. As Noble explains,
“The average investor also wasn’t impacted by the Silicon Valley Bank environment. The FDIC stepped in, these deposits were federally insured, everyone got their money back very quickly.” This incident highlights the essentiality of investing principles like diversification. “The principle of investing is to be diversified, and never put all your eggs in one basket,” Noble reiterates.
Noble also reminds us that recessions are an inevitable part of the market cycle. Being prepared and having a long-term investment plan can significantly mitigate the impact of these downturns.
“When you’re invested and you stay invested through a recession, has the market, historically, and traditionally, been able to recoup any of those losses within a reasonable period of time? And the answer is yes,” he says.
This stance is particularly relevant for those with a longer time horizon until retirement.
“I’m 40 years old, I can be 100% in stocks, if a recession hits tomorrow, who cares? That has zero impact on my retirement portfolio, because I’m not going to retire for at least 20 more years,” Noble adds.
The collapse of SVB, while significant, seems to be a phenomenon more confined to a specific business model heavily reliant on the tech and venture capital sector. Larger, more diversified banks are proving more resilient, absorbing the shock, and continuing to experience deposit inflows.
Despite the turmoil and uncertainty following SVB’s collapse, the safeguards within our global financial system are more robust than ever. We have buffers in place, refined through past experiences like the 2008 financial crisis. Coupled with prudent investing behaviors like diversification, the chances of a broader financial crisis triggered by a single bank failure seem significantly diminished.
The essence, as per Noble and other financial experts, lies in understanding market cycles and preparing for downturns rather than fearing them. The focus should be on diversification and long-term strategies rather than reacting to short-term market volatilities.
“If we stick to those basic principles, what history has taught us is that we should be able to weather just about any storm,” says Noble.
