the safe haven of government bonds. Interest rates started to come down, and the value of bank holdings in these securities actually increased. To a small extent, the problem was self-correcting. But there is more to this story. Other banks are at risk, and runs are possi- ble. Further, an emerging issue exists with commercial loans. Office vacan- cies in major cities have skyrocketed over the past few years. Commercial mortgages are coming due. Borrow- ers with lower rental income may not be able to afford new loans with higher interest rates than before. We
could be headed for a new round of defaults. Most of these commercial loans are concentrated in regional banks. How extensive the problem will be, I cannot say at this time. While I don’t think this issue is as extensive as the last mortgage crisis, I do believe banks will feel some pain. Some may even fail. My recommendations are twofold. As stock investments, I would avoid regional banks for now, or at least investigate their holdings in commer- cial loans. Second, be leery of holding in excess of FDIC insurance limits in
any one bank. I still think the econ- omy will hold up, but there’s less room for something to go wrong.
Disclaimer: The views expressed in this article represent those of the individual author. Stephen Fauer, CFA Stephen Fauer is Chief Investment Officer of Pinnacle Capital Management, LLC in E. Syra- cuse, NY. He has served in that capacity since the firm's founding in 2006. He oversees all separately managed accounts and serves as portfolio manager to the firm's NYSAFE L.P. fund. He is a 1980 graduate from Michigan State University and earned his MBA in Finance from New York University in 1984.
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