First there was Silicon Valley Bank (SVB) on March 10th and then First Republic Bank (FRB) on May 1st. Who’s next? Did anyone lose money? Do I need to worry?
It has certainly been quite a jarring spring with the failure of several banks and several other banks under pressure as some investors are unloading stocks of midsized banks. The good news is that the scope and size of this banking crisis is very small compared to what was happening during the financial market meltdown of 2008-9. Another difference is that banks overall are much healthier now than they were back then.
As you think about banks, there are two aspects to the story: As a depositor and as an investor. Let’s talk about depositors first.
If you have money in a bank as most of us do, you may be wondering if it is safe. As a depositor, the Federal Deposit Insurance Corporation (FDIC) insures nearly all bank deposits in the United States up to $250,000 per depositor. The National Credit Union Administration (NCUA) provides similar insurance to depositors at credit unions. For most people, $250,000 is more than adequate insurance. However, SVB and FRB both had wealthy depositors who in many cases had deposits far in excess of the $250,000 limit. So, when word got out that the banks had big losses on their US government bond holdings, depositors fled. This surprised the banking sector and many regular depositors at other banks. With FDIC/NCUA insurance most depositors have little to worry about, especially if their cash deposits are under $250,000. Since these bank takeovers, depositors have continued to be able to access there funds just as they did before.
In contrast, investors in SVB and FRB stock both had no protection against declines in their respective stock prices. However, these midsized banks generally made up less than 0.5% assets of the S&P 500 index before the news hit. This means that for diversified investors, the impact of these two banks barely noticeable. Since that time many regional banks have declined in value as investors worry that other banks in this category might have similar problems. It is still early days in this pull back but so far the damage to the banking sector appears limited and may be overdone.
Want to know more about how your accounts are protect by the FDIC, you can go here: https://www.fdic.gov/ For the NCUA, go here: https://ncua.gov/
Investors should remember that while their investments can fluctuate in value but that they, too, have insurance against fraud or theft of their account holdings. The Securities Protection
Investor Corporation (SPIC) protects brokerage accounts against wrongdoing up to $500,000 as well as additional insurance that is offered by some brokerage firms. You can find more info on SPIC here: https://www.sipc.org/
Still worried about your money? Give me a call. I’m here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
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