Is my money safe? How secure is the banking system? Your Silicon Valley Bank fallout questions, answered
The question on so many bank customers’ minds in the aftermath of Silicon Valley Bank’s stunning collapse: Is my money safe?
A bank run on Silicon Valley Bank led the Federal Deposit Insurance Corporation to take control of the bank Friday in the second-largest bank failure in US history.
The FDIC insures depositors up to $250,000, but as many larger companies used SVB as their bank, they had a lot more than that in their accounts. US customers held at least $151.5 billion in uninsured deposits by the end of 2022, SVB’s latest annual report said. Foreign deposits reached at least $13.9 billion and are also uninsured.
But before markets opened this week, the Biden administration took an extraordinary step, guaranteeing that SVB customers will have access to all their money starting Monday, even uninsured deposits.
In short, if you have less than $250,000 in your account, then you almost certainly have nothing to worry about. That’s because the US government insures the first $250,000 in eligible accounts.
Many SVB customers had much more than $250,000 deposited and now that they can’t get their money, some companies are struggling to make payroll.
It doesn’t make sense to take all your money out of a bank, Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF, said. But make sure your bank is insured by the FDIC, which most large banks are.
“I don’t think people should panic, but it’s just prudent to have insured deposits versus uninsured deposits,” Hatfield said.
Your money is most likely not going anywhere.
Everyday consumers, on the whole, are unlikely to be affected. But the collapse is a good reminder to be aware of where your money is held, and not to have it all in one place.
“The first bank failure since 2020 is a wake-up call for people to always make sure their money is at an FDIC-insured bank and within FDIC limits and following the FDIC’s rules,” Matthew Goldberg, a Bankrate analyst, said.
The FDIC has different resources on its site. The “bank suite” tool offers a list of FDIC-insured banking institutions and the Electronic Deposit Insurance Estimator calculates the insurance coverage of different deposit accounts at banks.
Hatfield’s advice was to split up your money between banks, so each one had a maximum of $250,000.
“Why not? If you have a million, why not have four accounts and have them insured,” Hatfield said. “Why worry about it?”
The banking sector should be, theoretically, more stable due to the regulatory reforms put in place after the crisis in 2008.
The government’s actions this weekend also try to prevent the next SVB from happening, further stabilizing the sector after a chaotic week. Rising interest rates meant cheap Treasury bonds SVB and other banks invested in years ago crumbled in value – last week’s bank run was triggered by SVB selling those securities at a steep loss to to help pay customers’ deposit withdrawals after people started pulling their money out of the bank.
T he Fed also said it will offer bank loans for up to a year in exchange for US Treasury bonds and mortgage-backed securities that lost value. The Fed will honor the debt’s original value for the banks that take the loans.
The Treasury will also provide $25 billion in credit protection to ensure against banks’ losses, which should help banks easily access cash when they’re in need.
“The Fed ring-fenced the SVB disaster and averted a crisis of epic proportions for the banking sector,” said Wedbush Securities’ Dan Ives.
Over the weekend, action from the government was expected to prevent a wider crisis that would lead to more bank runs.
“If they do that, that will stop this panic from spreading to other banks and solve many of the problems, at least in the short term,” Economist Richard Duncan said Sunday. “If we start to see a significant banking panic, and this is going to have much wider repercussions throughout the US economy.”
SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, provided financing for almost half of US venture-backed technology and health care companies.
Every bank has losses on their securities and uninsured deposits. US banks were sitting on $620 billion in unrealized losses (assets that have decreased in price but haven’t been sold yet) at the end of 2022, according to the FDIC.
Still, there’s no need to panic yet, say analysts.
“[Falling bond prices are] only really a problem in a situation where your balance sheet is sinking quite quickly… [and you] have to sell assets that you wouldn’t ordinarily have to sell,” said Luc Plouvier, senior portfolio manager at Van Lanschot Kempen, a Dutch wealth management firm.
Most large US banks are in good financial condition and won’t find themselves in a situation where they’re forced to realize bond losses, said Gruenberg.
A bailout of Silicon Valley Bank itself was not under consideration, Yellen said in an interview with CBS Sunday.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out… and the reforms that have been put in place means that we’re not going to do that again,” Yellen told CBS. “But we are concerned about depositors and are focused on trying to meet their needs.”
Steps the government took over the weekend also quelled fears of SVB turning into a full-blown crisis.
“Monday will surely be a stressful day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion,” Jefferies analysts Thomas Simons and Aneta Markowska said in a note to clients Sunday evening.