With higher interest rates, bank failures, and the nation coming close to the debt ceiling deadline, there are some uncertainties around America’s financial future.
ErikaBlair McGrew, a college professor of finance and financial consultant, recently spoke with ADW to shed light on how financial issues in the nation have impacted the Black community.
How did you get involved in the financial industry?
I’ve been in financial services since 2005. I got introduced to it while getting my MBA at Clark Atlanta University. I saw that was an area where our culture didn’t really get a lot of exposure to. So in 2005, I started working in finance and managed money for 401K plans, pension plans, and big institutions. And so I saw the lack of Blacks and minorities in the investing field. After that, I went on to work for Merrill Lynch as an Associate Vice President, managing money for high net worth clients, making sure that they sustain their wealth and also grow their wealth through different investment portfolios. And now, I’m currently with a registered investment advisor in Atlanta. I manage about 130 clients with about $13 million assets under management.
Can you shed light on the recent bank failures?
We can start with Silicon Valley Bank. SVB is a bank that does not operate like your regular regional or national banks. Silicon Valley Bank was geared towards hedge funds and tech community, venture capitalists, and things like that. So whereas a normal bank, they make their money by lending out deposits, in the form of loans, credit cards, and so forth. So when you’re paying interest on those loans, paying interest on those credit cards, that’s how that bank is making money. A traditional bank may lend out 20% to 30% of their deposits, and loans or credit cards. SVB actually lent 90% or 80% of their deposits because they’re dealing with this special sector. Their lending practices were a lot more flexible. The other thing that took them over the top was the fact that back in 2020, before rates start rising, they bought a whole bunch of bonds. So they put a significant amount of money in bonds. But when interest rates go up, the value of bonds go down. So now they got a whole bunch of bonds on their books that are decreasing in value because of raising interest rates. The thing that kind of put them over the edge was that they were highly invested in bonds that have decreased in value.
The Fed have also raised interest rates numerous times over the past years. How does rising interest rates and the failure of banks impact the Black community in terms of home ownerships and business loans?
Before those banks collapsed, we were already projecting a recession right. So anytime the Fed continues to raise interest rates, even when a banks collapse, it can push us closer to a recession. The Fed is raising interest rates because they’re trying to control inflation. Inflation has gotten up to 9%. It’s now down to about 5%, but they want to get it down to 2%. So anytime you have raising interest rates to get inflation down to a certain level, it pushes us closer to a recession. So what does it mean in terms of homeownership and business? Well, for home ownership, we see that mortgage rates are starting to increase. So that means if you’re in the market for a new home loan, you’re going to pay more, you’re not going to qualify for as much because the interest rates are higher. And then with business loans, it’s going to make the criteria a little bit harder. Now, on the back end, you do have some mortgage companies that are getting creative. There are interest rate reduction programs.
What advice do you give to those who are in the market for a home or looking for business loan?
The banks are getting creative, and they are offering different types of programs. In terms of home ownership, lenders are now offering programs where they will buy down your rate, sometimes up to 3%. So get with a lenders that is willing to offer a buy down rate, then that will be your best bet instead of you paying 6%. So if you are in the market for a new home right now, then you want to look for lenders and companies that are offering rate reduction or buy down programs. If you’re looking for a business loan, you may want to see if there are other types of grants and other funding that may be available. There are non-loan types of funding that are available for different types of businesses. I think that there’s money out there besides loans when it comes to business. It just takes a little bit of time to research
Can you give us some insight on Young Wall Street Inc?
Young Wall Street Inc is my nonprofit. I started Young Wall Street while working as an adjunct professor at Clark Atlanta. I just saw that our culture, we just don’t get exposed to wealth principles. There aren’t many people in our families who really invest. So I created the non-profit to educate students. We now have two-week summer boot camp. And the goal is to help decrease the wealth gap by teaching investment principles.
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