Prior to becoming president of the New Jersey Chamber of Commerce, I spent over 40 years working in the banking industry. So, naturally, many of our members have reached out to me over the past couple of weeks asking if they should feel confident about their financial services institutions. Some people are worried, especially small business owners.
I’ve been talking to banking executives from around the state. As a result, I’m confident New Jersey banks are healthy, have strong balance sheets, have had good earnings and are well managed. That’s also the case for regional and large financial institutions operating in our state. They do not have the problems that plagued Silicon Valley Bank or Signature Bank, which are niche institutions catering primarily to specialized markets. Now, unfortunately, because of these banks, people are questioning the soundness of the entire banking system and are fearing a financial crisis on the level of 2008. While the recent bank failures sent shockwaves through the banking system and financial markets, this is not 2008 and the current banking turmoil is not systemic. The current calamity is because a small number of banks did not have proper controls in place or management oversight to steer them away from risky practices such as a failure to diversify during a time of rising interest rates. Also, there were warnings that regulators overseeing those banks should have addressed.
How should business owners mitigate fears
Here’s how I have been counseling those that have reached out to me in regard to the soundness of the banking system – and how to manage their banking relationships in a time of higher interest rates and tightening credit.
· First: Have a discussion with their bankers. Ask them how the bank is responding to the banking crisis. Also, ask your banker if your credit needs will continue to be met in the midst of current conditions. These conversations will reassure you that your bank is here for you – and it will help your bank better understand your needs going forward.
· Second: In regard to tightening credit markets, you should always keep cash in reserve if you can. Having cash is a good practice under all circumstances, and it will help you in case banks pull back on lending.
· Third: there’s no reason for panic.Once again, this is not 2008 and your money is safe in your banks. Treasury Secretary Janet Yellen has stated that publicly. Already, your money is insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Nearly all banks are FDIC insured. Secretary Yellen has also indicated that the FDIC would also cover funds above the current limits, if necessary, but limited to specific troubled banks that might occur in the future.
· Finally: Don’t put your company’s money under the mattress. Some business owners have knee-jerk reactions to crisis, and as a result, do not make sound decisions. Your best move is to keep your money in FDIC-insured banks to offer protection.
There is a lot of uncertainty – and I understand that there is much confusion and fear due to recent headlines. However, it seems that the banking issue of the past weeks is subsiding and there’s no need to make rash decisions. Don’t panic, have an in-depth conversation with your banker about your needs and be confident that banks here in New Jersey are safe and sound.
Tom Bracken is president & CEO of the New Jersey Chamber of Commerce – and spent over 40 years as a banking executive for New Jersey National Bank, CoreStates New Jersey, First Union, Sun Bancorp and TriState Capital Bank.