Bank Solvency | Wisdom, Wealth, and Wellness

Jonathan Satovsky

Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management. Today’s episode of “Seeking Wisdom, Wealth, and Wellness,” is a special edition on bank runs.

Why are bank runs happening? Well, typically, to try to give a simple explanation, when a bank takes in a deposit, these days it’s 0% interest, and they loan it out. They can invest it. They might buy ten-year Treasuries, they might buy mortgage bonds, or they could loan it out to businesses or consumers to get a mortgage or a business loan, or whatever the case may be. Now, what’s fascinating is they generally loan out their leverage ten to one. So if everyone wanted their money back, they generally don’t have more than ten cents on deposits. So if the value of the assets they invested in dropped by ten cents, the firm’s net worth is basically bankrupt.

In the financial crisis in 2008/2009, because of the complicated assets and the very difficult-to-value securities, the government changed the rules to enable them to not adjust the valuation until maturity. If you have a loan that’s maturing in three years, if it’s paid off and good, it doesn’t need to change in value. That’s not how the market works. If a consumer was looking at your balance sheet, you’re marked to market every single day. So banks had a little bit of a different regulatory structure. Well, now that people are contemplating that, and they say, “Well, what is the valuation today?” There are many insolvent institutions because when the prices of securities decline significantly, their net worth is underwater. So you got a little panic situation going on. Some of it real, some of it imaginary, some of it promulgated by the unintended consequences of bizarre rules, but perhaps you should contemplate that for your own purpose, and to take a really conservative view on your path to Wisdom, Wealth, and Wellness, so that you’re never underwater.

Have a great day.

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Video Recorded March 12, 2022

This blog post is not intended to be, nor should it be construed or used as, an offer to sell, or a solicitation or offer to buy any securities or interests in any strategy offered by Satovsky Asset Management, LLC (“SAM”). SAM is a registered investment advisor with the Securities and Exchange Commission – for more information see Please remember that different types of investments involve varying degrees of risk, and that past performance is not indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the strategies recommended or undertaken by SAM) will be profitable. Market index information shown herein is included to show relative market performance for the periods indicated and not as standards of comparison. The market volatility, liquidity and other characteristics of SAM’s portfolio composition are materially different from the securities listed on public market indices. Market index information was compiled from sources that SAM believes to be reliable. No representation of guarantee is made hereby with respect of the accuracy or completeness or such data. Opinions are as of date of video and are subject to change. A copy of SAM’s current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. SAM undertakes no duty to update information presented herein.

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