A financial crisis triggers fear and uncertainty, not only in us, but in our country and banks. Factors such as economic downturns, excessive risk-taking and poor management within the banking and financial industry all play factors in a culminating crisis. We see governments stepping in to mitigate the impact and larger banks purchasing smaller banks at a discount.
There have been other times we have experienced a financial crisis and we can not only learn from the past, but plan for the future. There are some reassurances of protection that are already in place to be aware of and we will cover some facts, some mindsets and prudent actions for the future. This in no way is meant to give you financial advice, but to equip you to make intelligent decisions going forward, evaluating your own situation and risk.
Why Banks Exist Historically and Today
Banks were designed to provide capital to expand economics. The Bank of Venice had its roots as far back as 1157 to support trade wars. They then organized a more public finance to accept deposits and advance loans. The Bank of North America was the first chartered bank in the United States, created by the Second Continental Congress in 1781.
Basically, a bank brings together small deposits that create a capital pool. They can then provide loans to the local economy. The large international banks provide large loans to the big international economy, but the smaller, regional banks are the ones we are more concerned about today as they affect most of us.
Those smaller banks provide loans for the office buildings and local services in our neighborhoods. When those regional banks get squished on their lending standards, they will make fewer loans. This makes it more difficult for small businesses and entrepreneurs to expand. It also makes it more difficult to get a home loan.
How to Deal with the Financial Head Trash
Before we let fear take over our lives and talk ourselves out of viable opportunities with business expansion or a side business, we can look at additional finance options. Private capital usually becomes more available at this time when regional banks stop lending. If you pursue this, do your homework and research the risk very carefully. Look at the track record and stick to conservative investments. At this time most brokerage accounts provide insurance on money markets up to $100,000, but again, do your homework. Also, there are many companies that have done very well bootstrapping their business, setting up private loans with family and other sources.
Realize you aren’t going to lose your money in a bank if it’s in an FDIC (Federally) insured bank. Most people don’t have more than $250,000 in a bank, which is the guaranteed insured amount. More than that amount should be dispersed in other investments. If a bank experiences a crisis, you may not be able to pull your money out right away, but you will get it. Be assured of that.
There should be no fear in keeping a certain amount of cash in a bank for bill pay and auto payments. Bills will still be paid, even in a crisis including home loans. The bank will experience a lot more trauma if everyone rushes to withdraw all their funds at once. There are safeguards and actions we can all take to avert a panic-filled rush that won’t solve anything. Get our FREE Goal Setting Worksheets, including Default Budget
Take Prudent Action in Investing
I remember vividly the moment while in elementary school, many many years ago, entering the huge front doors of our local Bank of America. I was holding the $100 bond note my grandmother had given me. I felt so rich! But I had no idea what that note really meant or what it cost. The bond had actually been purchased at a discount and matured some years later. I didn’t cash it in until I got married, but the value held for the full $100 amount, of course.
• U.S. Bonds or Treasury notes are actually a fairly safe investment as they are insured, pay interest and are held for a limited period of time. But do your research! There are many purchasing options and you can even discover some of those options through your bank. The purchase can be as simple as creating an online account and investing with a click.
• It is wise to keep a month of cash at home. For this, you can hide it in a safe place, but all will not be lost if something happens to it with a fire or theft. This cash is kept so your daily needs can be taken care of in a crisis.
Do your own due diligence in checking your bank’s balance sheet. Even though my husband Greg was a Financial Advisor, he says to not totally depend on your advisor. You can check online for reviews and news. Just like choosing a good restaurant, we can usually see what is being said about a local bank. My little local bank is being bought out by another larger bank. Government bailouts usually bring more taxes, so a buyout is actually a good way for a bank to regroup. A bank is a business and if it experiences bankruptcy it will either reorganize or be bought out.
I hope this has reassured you in some way. Don’t let fear overtake your decisions. Act prudently, pursuing wise options, enjoy your work and if you want to expand, realize there are options available!
- Greg & Deb Johnson
Greg & Deb Johnson are on the Women at Halftime Podcast together once a month. Greg is a former professional athlete, a triple A relief-pitcher with the Cleveland Indians (now Guardians) He also has years of experience in sales and as an R.I.A. (Registered Investment Advisor), owning his own business. He & Deb met on a blind date and have been married over 40 years.
There are safeguards and actions we can all take to avert a panic-filled rush that won’t solve anything.
Thought Leader, Keynote Speaker, Author
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