{"id":901161,"date":"2023-05-11T15:26:00","date_gmt":"2023-05-11T21:26:00","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=901161"},"modified":"2023-05-10T15:33:56","modified_gmt":"2023-05-10T21:33:56","slug":"construction-risk-with-bank-failures","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/construction-risk-with-bank-failures\/","title":{"rendered":"2023\u2019s Bank Failures: What Contractors, Material Suppliers and Equipment Lessors Can Do to Protect Themselves"},"content":{"rendered":"\n

Garret Murai | California Construction Law Blog<\/a><\/p>\n\n\n\n

It has been a tumultuous year for the banking industry. Since the beginning of this year the industry has seen the collapse of Silicon Valley Bank and Signature Bank, the shotgun marriage between failing Credit Suisse and USB, and, most recently, the collapse of First Republic Bank this past week and its purchase by JP Morgan Chase. Indeed, according to the New York Times, these three bank failures cum bailouts alone were bigger than the 25 banks that collapsed during the financial crises of 2008 and some are concerned that it is just the beginning.<\/p>\n\n\n\n

This, of course, has impacted the stock market, with Forbes reporting that the banking industry lost more than $300 billion in market value as of the end of March. However, it also raises concerns regarding liquidity on construction projects.<\/p>\n\n\n\n

While the failing banks have either been bought out by other banks or shored up by the federal government, which, in the case of Silicon Valley Bank and Signature Bank, involved the Federal Deposit Insurance Corporation (FDIC), the Treasury Department and the Federal Reserve stepping into to protect depositors by\u00a0guaranteeing deposits\u00a0in excess of the current FDIC limit of $250,000, there continues to be concerns over access to cash. This can impact construction projects in several ways.<\/p>\n\n\n\n

First, and most obviously, it could impact cash flow to downstream contractors, material suppliers and equipment lessors due to delays in accessing cash or, if there is a bank failure and the FDIC, Treasury Department and Federal Reserve don\u2019t step in as they did a la<\/em> Silicon Valley Bank and Signature Bank, there might not be access to sufficient cash at all.<\/p>\n\n\n\n

Less obviously, it could result in more foreclosures if owners find themselves without sufficient cash. Although only interest is typically due on construction loans through completion of a project, at which time many owners will refinance the loan into a traditional loan, for larger construction loans even interest payments could become difficult. And, finally, stricter lending by banks who want to preserve their cash reserves, together with rising interest rates, could impact construction projects that have yet to break ground.<\/p>\n\n\n\n

So, what can contractors, material suppliers and equipment lessors do to protect themselves? Here are some suggestions, some obvious, some less so:<\/p>\n\n\n\n