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By March 16, 2023VZD News

Welcome to another edition of “Ethel’s Diamond Post.” March is Women’s History Month, where we celebrate and pay tribute to women’s contributions to history, culture, and society. The month of March has paid homage to women in the United States since 1987. We reflect on the often-overlooked contributions of women – past and present. I come from a community of strong women who encourage me and uplift my spirits throughout my journey. I am determined to help other women reach their financial destinations. VZD Capital Management, LLC celebrates all women who allow us to help navigate to achieve their financial goals and objectives. We are committed to serving women who continue to face unique challenges historically unaddressed by the financial services industry.

Are you concerned about the overall health of the banking industry? Did you call your banker to ensure your deposits were insured and the assets were available for unlimited withdrawals? If so, you were not alone in the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank last week. One of the largest banks collapsed last Friday, forcing the government to devise a hasty emergency takeover solution over the weekend. Unfortunately, the previous administration rolled back some of the requirements aimed at helping small and midsize banks compete with larger banks by easing restrictions. President Joe Biden reiterated that “no losses” stemming from the collapse of Silicon Valley and Signature banks would fall upon the backs of taxpayers. President Biden stated that the management and executives are accountable for the fall resulting in ongoing investigations and terminations.

Silicon Valley’s Bank tripled its assets during the pandemic-era tech boom between 2020 and 2022. SVB placed a sizeable share of its funds into long-term Treasury and mortgage-backed securities to diversify its deposit, delivering small but reliable returns amid low-interest rates. The struggle became “real” when tech companies made a run on the bank, withdrawing cash rapidly and forcing it into a position where it had to sell bonds at a loss to cover the withdrawals.

The Federal Deposit Insurance Corporation, or FDIC, took control of SVB’s assets last week after the bank ran out of cash. Signature Bank, a New York-based financial institution that became a significant lender in the crypto industry, was also closed over the weekend. The bank was part of only a handful of financial institutions allowing customers to deposit crypto assets. It did not serve the bank well when crypto plunged due to FTX’s collapse last year.

Over the last year, the Federal Reserve raised its benchmark interest rate by 4.5 percent, the fastest pace since the 1980s. The sudden spike in interest rates dropped the value of Silicon Valley Bank’s Treasury and mortgage bonds, punching a hole in its balance sheet. Facing a complex business environment for tech companies, some large clients pulled money from the bank last week, forcing them to sell some distressed securities to provide the cash. The vulnerable condition of the bank’s balance sheet scared other major depositors, who pulled their funds from the bank, prompting a domino effect that suddenly gained momentum.

The group of depositors in Silicon Valley comprises a relatively small set of venture capital firms, startups, and other large investors, many of whom held deposits that exceeded $250,000. Those depositors risk losing a portion or all of their money that exceeds that threshold. The government was unaware and caught off guard but took extreme measures to limit the risk posed to the banking system. The Federal Reserve will allow distressed banks to borrow funds directly from the Fed on favorable terms versus generating cash by selling underwater securities to safeguard the depositors.

What shakes most investors are the continuous aftershocks that come after something like this. The fallout spilled into the credit markets as well. Investment-grade financial debt slumped, while U.S. corporate credit risk soared to a four-month high. Some investors rush for the exits without asking any questions, which is the WRONG thing to do. Once we move away from the initial shock rather than painting everyone with the same brush, then the volatility should decrease. VZD believes something good can come from this downturn if you can find the opportunity to transition into fixed income and purchase good, undervalued companies trading at a deep discount.

Next, Charles Schwab & Co., Inc is our sole custodian for our valued clients. Founder and Co-Chairman Charles Schwab and CEO Walt Bettinger said in separate statements that the firm has a broad base of customers and capital above regulatory requirements. “Schwab’s long-standing reputation as a safe port in a storm remains intact, driven by record-setting business performance, a conservative balance sheet, a strong liquidity position, and a diversified base of 34 million-plus account-holders who invest with Schwab every day”.

The Charles Schwab Corporation is one of the biggest multinational financial services companies. A world leader in banking, electronic trading, and wealth management for retail and institutional clients. So, what kind of insurance does Charles Schwab have on brokerage and retirement accounts? At Schwab, the brokerage accounts insurer is the Securities Investor Protection Corporation (SIPC)—a program to protect against losing customer assets on the brokerage side. Your savings account, on the other hand, is protected by the Federal Deposit Insurance Corporation. On top of the SIPC insurance by Schwab, customers of the firm can receive additional coverage. If all funds covered by SIPC protection are exhausted, Schwab has an “excess SIPC” fund of $600 million to help ensure more customer claims are covered.

With Charles Schwab & Co., Inc., your assets are as safe as possible. All deposits at Schwab are insured, up to $250,000, limited by the FDIC. This includes high-yield and money market accounts such as the Schwab Bank High Yield Investor Checking and savings accounts. Another positive factor is that the aftermath of the SVB’s collapse could halt the aggressive interest rate hikes. The failure was a byproduct of the Fed’s fastest interest-rate increases since the 1980s, a botched fundraising plan for regional banks, and an onslaught rush of depositors to withdraw their money. Professionally speaking, why would anyone purchase long-term Treasury paying 1.5 percent to hold to maturity? Inflation is eating that yield alive. No matter the size, every bank should undergo stress tests – no matter their reputation.

Today’s volatility in the broad market was due to concerns over Credit Suisse’s financial institution. The Saudi National Bank, one of Credit Suisse’s largest clients, said it would not purchase any more shares of the financial institution. Credit Suisse’s stock declined more than 20 percent pre-market, dragging down the S&P 500 and other indices. However, the market returned later in the afternoon after investors’ fears subsided after being reassured that all kool-aid was not good. Buy the dip is still relevant, and not all financial institutions are unhealthy, but they are significantly on sale due to being a member of the financial sector.

If you have any questions or concerns, please call me at (816) 726-7066 or email Please note that a second newsletter will address the new retirement laws brought on by the Secure 2.0 legislation.

Thank you again for your trust and confidence in VZD Capital Management, LLC, and our staff.

With Gratitude,
Ethel and Nikisha

Ethel and Nikisha