In 2023, runs on Silicon Valley Bank and Signature Bank, the collapse of First Republic, and the liquidation of Silvergate Bank all occurred within a span of 60 days.
Those events — which included three of the four largest bank failures in U.S. history — stunned the financial world.
According to U.S. Money Reserve President Philip N. Diehl, rising interest rates are now prompting new concerns about banks’ performance.
Diehl, who served as the 35th Director of the U.S. Mint, discusses the effects high interest rates — a primary factor in the 2023 bank failures — might have in the future during a November 2024 video edition of “Market Insider,” U.S. Money Reserve’s review of current market conditions.
“Concerns about the stability of our banks are rising again,” Diehl says. “Why? Because interest rates are rising again.”
To conquer inflation, the Federal Reserve had adopted tight monetary policies, which seemed to be working because consumer price–related inflation was falling. In response to this progress, the Fed lowered the target range for the federal funds rate by half a point in September 2024, followed by another quarter of a percentage point in December 2024.
Interest rates didn’t fall, however, in response to the September cuts. They actually increased, even though inflation did not.
“Why?” Diehl asks. “Because expectations changed on a dime. After the Fed acted, the government reported new data showing the economy was hotter than expected. Also, attention turned to U.S. government debt and rapidly rising government debt worldwide.”
Preparing for Bank Problems
Possible policy moves such as tariff hikes under the incoming administration could result in higher deficits, faster inflation, and the resumption of rising interest rates — which would be bad news for troubled banks that bet on sustained low or falling interest rates.
While some of those concerns may abate once the new U.S. President’s budget is released in early 2025, Diehl says consumers should be aware that issues could arise at some point in the banking sector, and they may want to proactively safeguard their finances.
Confirming your bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) can be a good place to start. If you’re not sure if they are, call your bank to find out.
If you own shares in a bank, you may also want to check the institution’s vulnerability factor. Depositors are protected by the FDIC; shareholders, though, can be at risk and potentially even lose their entire investment.
Diehl says consumers should also be aware that markets hate uncertainty, a considerable amount of which currently exists.
The United States, for instance, has experienced escalating political instability and policy uncertainty. Internationally, war is spreading in Europe and the Middle East, geopolitical tensions have been rising because of the actions of China and North Korea, and economic deterioration has been occurring in China and throughout Europe.
According to Diehl, the world is facing a level of uncertainty we haven’t seen since the 1930s, which could upset financial markets.
Physical gold, however, may be able to serve as a safe-haven asset.
The precious metal is outperforming the S&P 500, Nasdaq, and Dow Jones Industrial Average indexes; and in the past year, gold prices have soared to historic highs, according to Diehl.
“For thousands of years, physical gold has been the port individuals have sought when their worlds are swept by political or economic hurricanes,” he says. “There is wisdom in taking such precautions, borne out by survival stories of people who were protected.”
