Crisis of Faith? Bank failures lead to new oversight efforts

Welcome to the April 2023 edition of our newsletter!  In this issue, we’ll examine proposals to increase oversight of money-market and hedge funds, and what it could mean for investors and clients.

To bank or not to bank?  That is the question for regulators

Following the collapse earlier this month of multiple banks which had unbalanced interest rate exposure, or were tied into cryptocurrencies which failed, regulators have looked anew at the strength of the banking system.  As interest rates have skyrocketed, more consumers are seeking yield from high-yield savings accounts and money market funds, including some offering historically high rates.  Investors see opportunity while regulators see risks.  Many non-bank actors could eventually be considered systemically important” by regulators which would increase oversight of their holdings.

As such vehicles have grown in popularity, scrutiny of the assts they hold to generate such yield has also grown.  Investors, large or small, should look into how non-bank firms generate their often lofty returns, to better prepare against the risk of using too many esoteric instruments, or being too vulnerable to increased volatility in rates or other factors.  Also important is understanding the track record of managers at these firms, especially newer entities whose only proven track record lies in their personnel.  By doing homework before investing, even if only to obtain supposedly safe yields, your clients can be more confident in their decisions.