Steve and Adam discuss the drama in the banking industry, and the potential impact on Registered Investment Advisers.

Transcript:

0:06 Welcome to crypto for planners.

0:09 I am Steve Larsen and with me is Adam Bloomberg and today we're going to cover what's going on with the banks and in the economy, Adam, how are you feeling about everything that's going on right now?

0:21 And you know, Steve, I am feeling okay considering, you know, kind of teetering on the brink of financial collapse, whatever that is that the economy are you personally that's on the brink of collapse.

0:32 The answer to that is, yes, it is.

0:36 Actually both, both are kind of teetering right now, but that's okay.

0:40 It's where we are and, and you know, you and I are here to chat about it.

0:44 Yeah, we are.

0:45 So what we're not going to do today is really give you a thorough recap of what happened that's already been done much better by better journalistic outlets than Adam and I talking on a zoom.

0:55 However, for those of you that you brought up to speed, there were three major bank failures here in the last several weeks.

1:02 They were all coincidentally crypto related for various reasons that we may get into.

1:07 And so we really want to cover what's going on.

1:10 Obviously, it's spread into some concern over bigger contagion that's going on.

1:15 But we really want to talk about what's going on with these three banks and how it might affect advisors, right?

1:23 And so well important important note there is the middle bank in their rights Silicon Valley Bank was actually not much of a crypto bank.

1:31 It was, it was a tech centered bank, it was created, you know, basically to service those companies that were getting VC funding in, you know, mainly in the Silicon Valley area at first.

1:43 But really those those companies that were getting VC funding in the tech arena.

1:47 and so they were actually notoriously not a crypto bank.

1:50 They did not like banking crypto related companies.

1:53 They like banking kind of web two related companies.

1:56 Fintech, those kind.

1:58 So that the middle of the three banks was really not a crypto related.

2:03 And remember the first one wasn't a, wasn't a total failure.

2:06 It was a bank that just wound down operations because they said we're not gonna have enough money if we don't wind down now and they gave and that Silver Gate, I'm referring to, they gave everyone their money back.

2:16 So again, I know we're not trying to recap everything, but when we see headlines and this, this is how it affects advisors, right?

2:23 Your clients see headlines about bank failures and bailouts and everything and that's really not what we're seeing here, we didn't have a full on failure from Silver Gate.

2:33 They wound down operations because, and we can go into the fact that they were, they had a, you know, a loan from the Federal Home Loan bank kind of pulled out from under them, but they gave everyone that gave all their deposits, depositors their money back and got rid of operations.

2:52 And with Silicon Valley Bank, it was just a run on the bank that didn't really need to be there.

2:57 And then with, with signature bank in New York, that one's kind of up in the air.

3:03 We still don't know, we, we still don't know they're there.

3:06 The fed is calling it a failure and we had to take it over and I'm a little leery of that.

3:11 Yeah, it was shut down via press release.

3:13 It would appear without much more of a formal process.

3:17 Exactly.

3:18 Yeah, it's one of those things like if you're a baseball player and you find out you got traded because someone sends you a tweet or something.

3:23 It's kind of like that.

3:24 Very, very similar.

3:26 I, you know, I know that, that I had some thoughts on it over the weekend and I think you may have summed it up in a, in a tweet.

3:32 It was something to the effect of, is this the dumbest bank run of all time?

3:38 Yep.

3:38 That sounds about right.

3:39 It was an incredibly dumb, but it was you know, and what you and I, what I kind of intimated to you earlier today and I think I said on Twitter is so many people that, I don't know, there are so many people that I know and, you know, I'm, I'm relatively privileged.

3:55 Right.

3:55 I have people, you know, all my friends have, have gone to college and their doctors and lawyers and in business and such, they still don't understand how fractional banking works and they don't understand that the inverse relationship between interest rates and bond prices and, and how that works.

4:11 So when they start reading headlines and these people are your clients right there.

4:15 They're the clients of advisers in plant or how they're, they're clients of advisors.

4:19 We talked to their reading these headlines going, oh my gosh, there's a banking crisis and the reality is there's really not a, I don't understand what the crisis is.

4:29 Right?

4:30 That, that's the trouble.

4:31 But, but it's one of those things on as a bank run starts, once it starts, it just keeps going, it's kind of self perpetuating.

4:39 hmm.

4:40 Is it being a crisis of confidence more than more than anything?

4:43 And let's, let's move over to that.

4:45 Let's move into how it, it does affect advisors and how a potential change in the macro environment is going to affect, affect practices.

4:53 So, for example, yesterday, so we met with my R A, we met with the team on Sunday, we decided to get something out to the clients on Monday just because there's so much bad information and so many scared headlines.

5:07 As you know, I'm not a big Twitter person, but I made the mistake of getting on there for, you know, about 20 minutes at night that I thought the world was collapsing and then I remembered why I stay off of their But what, what, what we, what we did.

5:19 So we put, we put on a webinar for clients and really the focus was, of course, here's what's going on, but we spent a lot of time going through basically the different types of accounts.

5:28 So you mentioned how people don't understand fractional reserve banking.

5:31 Well, we, we wanted them to understand what a bank account is, you know, how they don't have all the deposits on hand to cover the clients.

5:39 And also the F D I C insurance is tied to that.

5:42 What does that mean?

5:43 And then over on the brokerage side, that's not for actual reserve.

5:46 So they're supposed to be your assets that aren't loaned out or borrowed against or anything else, you know, whether that's the case, that's a different story, but that's at least theoretically how it works.

5:55 And then there is civic S I P C insurance on that and how that works.

6:00 So that's kind of, that's kind of where we started at our firm.

6:03 Yeah, and that's a great place to start for any advisor is to just kind of help your clients understand and then you can, you can move forward from there and once they have a better understanding, then you can move forward and go.

6:15 All right, let's, we can talk individually with all of you about where your account sit, what kind of risks there are in those accounts because that's your job as the advisors to, to know about these things and then, and then to help them through it.

6:27 So that's a good place to start is not to go, is not to go full on Twitter.

6:32 You know, all caps, this has to stop or you have to hate the government or everything's falling.

6:37 But let me just explain to you how all these work and then if you need to come talk to us, but which you probably did, if you need to come talk to us about it, you can schedule an appointment and we'll talk about your different accounts, whether they're at banks, whether their brokerage accounts wherever and what they mean, what kind of risks there are, whose money it is officially.

6:59 And you know, let's have those discussions.

7:01 And as I said, most people don't understand how all that works.

7:04 So if you just explain it to it and your job as the advisor is the first, is that first line of education, then that's a good place to start.

7:13 Now, now, what if people, you know not?

7:16 What if clients started with where I started with, right?

7:18 Like there's a run on crypto banks there after the crypto banks.

7:22 This is about crypto and it's not about crypto at the same time.

7:25 So that gets, that gets a little more confusing as far as the bank fundamentals.

7:29 I certainly don't think so, but as far as the crypto banks being targeted.

7:32 Yes.

7:33 So where do you, where do you think crypto as it relates to advisors fits into this scenario here?

7:42 So the hard part is, you know, as we've seen it very much seems like the crypto related banks are being targeted by the government, right?

7:51 And there's plenty of stuff to read, there's plenty of stuff that is conspiracy theory and some of it that is probably not at all conspiracy theory that is the crypto banks or the crypto industry, I guess is being targeted in one way you target that is you go after the banks that are banking, the actual companies and those companies being exchanges, those companies being, you know, like circle which offers us D C or U S dollar coin, you start targeting those banks and saying you're no longer allowed to exist.

8:19 And therefore all your depositors have to get their money back.

8:22 And I got to go find another bank and eventually crypto companies run out of banks, run out of places that, that they can hold their money.

8:28 So where it affects, where it comes down to affecting c