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A new banking crisis? MoneyMinds is back!

A new motivation, a new schedule and a… new banking crisis?

Author

Jonne Frankena
March 19, 2023

We’re back, just in time for the next financial crisis! Or, maybe not?

This is what I’ve got for you today:

  • 💫 New schedule & focus

  • 🐝 A new platform

  • 🎁 Gifts for you!

  • 🏦 A banking crisis?

A new motivation, a new schedule and a… new banking crisis?

It’s been a while since you last heard from me! Just about two months, in fact. Don’t worry; I have not been sitting still since then and now. Here’s what’s new:

💫 New Schedule & Focus

In our last newsletter in January, we spoke about widening the focus of MoneyMinds.

Here’s what I’ve decided on for now:

MoneyMinds will be:

A Zoomer’s Guide to Mastering Modern Life
The untaught knowledge to future-proof yourself.

The topics I’ll write about will be broadly clustered in the following “pillars” with subcategories:

Financial Literacy:

  1. 💶 Personal Finance (saving, spending, taxes…)

  2. 📈 Investing (how, what, types of investments…)

Future-Proofing:

  1. 🎨 Life Design (how to optimise your life, behaviour, efficiency, psychology…)

  2. 📡 Technology (how the latest tech will impact your life, how to future-proof yourself… e.g. AI)

Professional:

  1. 💼 Career (making career choices, asking for promotions, job interviews…)

  2. 🚀 Entrepreneurship (how to start your own business, tips for entrepreneurs, taxes, side hustles…)

What do you think about these? Anything you’re missing? Specific topics you’d like to learn more about?

🐝 A new platform: Beehiiv

On the backend of things, I’ve moved from the newsletter platform Convertkit to Beehiiv. Most of you will probably not care too much about the technical side of things, but this platform is great! If you ever think about starting your own newsletter, I highly recommend them.

I go into more detail about why I’ve changed in an article on the website later, but let me highlight the benefits of this new platform for you, the reader!

  • Cleaner emails. A common complaint with the old newsletter was that it was hard to read on mobile. This problem should be resolved now (let me know!)

  • New home on the web. A clear overview of all old newsletters on newsletter.moneyminds.io. Searchable and sorted by topics.

  • A whole new REFERRAL SYSTEM with a lot of 🎁REWARDS🎁 for you 😄.

    If you spend your precious time getting your friends or family to sign up for MoneyMinds, I think you should be rewarded for that time. That’s why I’ve set up a referral system, where for every person that signs up through your link, you unlock useful rewards. Here are the current rewards:

    • 1 referral: Guide: ‘Kick-start your Money Journey in 6 easy steps’

    • 3 referrals: Guide: ‘Get your worth: Salary Negotiations’

    • 5 referrals: Google Sheet: ‘Salary Negotiations’

    • 10 referrals: Guide: ‘Investing 101’

    • 50 referrals: Free one-hour intro coaching session with me (value: €200)

Referral page example

At the bottom of every newsletter, you’ll see the following referral page to show you how close you are to your next reward :) Hopefully, this is nice compensation for the time you spend helping me out 😃

Hope you like this new setup for the newsletter. As always, reply to this email and share your thoughts with me. Your feedback helps me improve and it means the world to me.

🏦 A new banking crisis?

If you remember the Financial Crisis of 2007-2009, this headline is probably not one you’re comfortable with reading. Yet, in the last couple of days, banks have again been making headlines, and not in a good way.

Some banks in both the U.S. and Europe are in trouble, with some even completely failing. Yet, there’s no need to panic (yet), as it seems to be quite different from what was going on during the Financial Crisis.

Here’s w/hat you need to know:

Silicon Valley Bank

  • Silicon Valley Bank (SVB), the 16th largest bank in the U.S., was shut down on March 10, 2023. The bank had about 209 $billion in assets in December 2022.

  • Though bank failures happen more often (about 550 between 2001 and the start of 2023), this one was particularly newsworthy because it is the largest bank to fail since Washington Mutual during the financial crisis in 2008.

  • SVB provided business banking services, especially to startups and venture-backed firms in, you guessed it, Silicon Valley.

  • For more details about how banks can fail, check out this article.

  • In the case of SVB, it failed mostly because its investments lost a lot of value, combined with depositors withdrawing their money.

How it went down:

Much of the money SVB was holding for customers wasn’t in cash (it almost never is) but in Treasury Bonds and other long-term debts. Think about this as loans to a government (the U.S.). As the interest rate % is raised, the loans actually lose value. This might seem counterintuitive…

But imagine this: I make a deal to give a million to the U.S. government. I get 3% interest on this loan every year until our deal expires, and I get all my money back. Now, the interest rate for NEW loans goes up to 4%. But I’m still stuck with my 3% loan. Obviously, I’m making less money than people that start a new loan today.

This in itself is no problem. I can just wait for the contract to end, and I get all my money back from the government.

But as this was happening, some of Silicon Valley Bank’s customers—many of whom are in the technology industry—hit financial troubles, and many began to withdraw funds from their accounts.

But the bank only has a small part of its money in cash; the rest is in these loans. This means they do not have enough cash.

Financial people call this a “liquidity problem”. So, I need to sell my investments to free up cash for my clients. I can’t wait for the loans to expire. BUT. Why would other investors want to buy my loans U.S. government from me? They will only get 3%, while if they start a new loan with them directly, they will get 4%.

The only way I can convince other investors to buy my loans and get cash is by selling my loans for less than their value, thus taking a loss on my investments.

This happened at a large scale for SVB.

What happens to the people who had money at this bank? They are protected up to a point. Read more about that here.

Another bank: Signature

A similar thing happened to Signature Bank 2 days after SVB. This was the third-largest bank failure in U.S. history.

It is estimated the U.S. banks’ total loss after the fall of these two banks is about $190 billion. Yikes!

Credit Suisse

Over in Europe, we are having some ‘hiccups’ too. Though at the moment, not inside the EU, strictly speaking. Credit Suisse, a large bank in Switzerland, just got a $54 billion lifeline from the Swiss central bank this Thursday, again for reasons of liquidity (not having enough cash on hand).

The 167-year-old Swiss bank has been plagued with scandals over many years, including some very heavy fines from regulators. This seems to be the next chapter in a story of mismanagement.

Clients pulled over 110 billion Swiss francs ($119 billion USD) in the fourth quarter of last year, while the bank had an annual loss of 7.29 billion francs last year. The largest shareholder of Credit Suisse is actually the Saudi National Bank. On Wednesday, they said they were not able to give more money to the bank, resulting in negative sentiment for investors.

How big are our problems?

We all know that the current economic outlook isn’t great, with high inflation, higher interest rates and a recession looming. Will all this bad news around banks result in a crisis? It’s hard to tell. While the news is negative, it seems to be more isolated than in 2008.

The financial crisis was caused by sub-primes. Without delving into too many details, this was much more widespread and more ‘systematic risk’ than what it seems we’re currently facing. Go watch The Big Short if you want a refresher on what went wrong there 😉.

If this will all blow over, or cause some serious problems, remains to be seen. My knowledge of macro-economy isn’t great enough to make any meaningful predictions here.

But I promise you I’ll keep you up-to-date with what’s going on. Let’s hope it indeed won’t effect us… 🙏 

Relevant updates from MoneyMinds.io:

Gems from the interwebs

And finally a meme because we all love banks 💗 

That’s all from me! Thanks for reading.

Cheers,

Jonne

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.