New York (CNN) The question on the minds of many bank customers in the wake The stunning collapse of Silicon Valley Banking: Is my money safe?
What is happening?
A bank run on a Silicon Valley bank led to the Federal Deposit Insurance Corporation taking control of the bank on Friday in the second-largest banking failure in US history.
The FDIC insures depositors up to $250,000, but since many large corporations used SVB as a bank, they had much more than that in their accounts. SVB’s latest annual report said that US customers held at least $151.5 billion in uninsured deposits by the end of 2022. Foreign deposits reached at least $13.9 billion, also uninsured.
But before the markets opened this week, the Biden administration took the unusual step of ensuring that SVB clients would get all their money back starting Monday, even for uninsured deposits.
Do I have to worry about the cash I have stored in my bank?
In short, if you have less than $250,000 in your account, you definitely don’t have to worry. That’s because the US government insures the first $250,000 in eligible accounts.
Many SVB clients have deposited over $250,000, and now that they can’t get their money back, some companies are struggling to make the payroll.
Should I withdraw my money from my bank?
It doesn’t make sense to withdraw all of your money from a bank, said Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager at InfraCap Equity Income ETF. 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 wiser to have insured deposits versus uninsured deposits,” Hatfield said.
But if I don’t run to take my money out of the bank now, won’t it be gone?
Your money is likely not going anywhere.
Everyday consumers are unlikely to be affected. But going broke is a good reminder to be aware of where your money is, and not put it all in one place.
Bankrate analyst Matthew Goldberg said: “The first bank failure since 2020 is a wake-up call for people to always make sure their money is in an FDIC-insured bank and within FDIC limits and following FDIC rules.”
The FDIC has various resources on its site. the Bank suiteThe tool provides a list of banking institutions insured by the FDIC and Electronic Deposit Insurance Estimator Calculate insurance coverage for various deposit accounts in banks.
Hatfield’s advice was to divide your money between the banks, with the maximum limit for each bank being $250,000.
“Why not? If you have a million, why not have four accounts and secure it,” Hatfield said. “Why do you worry about that?”
Is this 2008 again?
The banking sector should, in theory, be more stable due to the regulatory reforms put in place after the crisis in 2008.
Government actions this weekend are also trying to prevent the next SVB, further stabilizing the sector after a chaotic week. Rising interest rates have decimated the value of SVB’s cheap Treasuries and other banks invested in years past – last week’s bank run was due to SVB selling these securities at a huge loss to help drive customer deposit withdrawals after people started withdrawing their money from the bank.
The Fed also said it would provide bank loans for up to a year against US Treasury securities and mortgage-backed securities that have lost value. The Fed will honor the original value of the debt to the banks that take out the loans.
The Treasury will also provide $25 billion in credit protection to guarantee banks against losses, which should help banks easily access cash when they need it.
“The Fed cornered the SVB disaster and averted a crisis of epic proportions for the banking sector,” said Dan Ives of Wedbush Securities.
Can the US federal government contain the panic?
Over the weekend, the government was expected to act to prevent a broader crisis that would lead to more bank runs.
“If they do that, it 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 major bank panic, that will have much broader ramifications throughout the US economy.”
SVB was among the 20 largest US commercial banks, with total assets of $209 billion at the end of last year, and provided financing for about half of the US-backed technology and healthcare companies.
Every bank has losses in its uninsured securities and deposits. US banks were losing $620 billion in unrealized losses (assets that have fallen in price but not yet sold) at the end of 2022, according to the FDIC.
However, do not panic just yet, analysts say.
“[Falling bond prices are] Only real problem in a situation where your balance sheet is sinking very quickly… [and you] “You have to sell assets that you wouldn’t normally have to sell,” said Luc Blouvier, senior portfolio manager at Van Lanschot Kempen, a Dutch wealth management firm.
Gruenberg said most large US banks are in good financial shape and would not find themselves in a situation where they would have to take on bond losses.
Yellen said in an interview with CBS on Sunday that bailing out the Silicon Valley bank itself was not under consideration.
“Let me make clear that during the financial crisis, there were investors and owners of large, systemic banks who were bailed out…and the reforms that were put in place mean we won’t do that again,” Yellen told CBS. But we are worried about our depositors and focus on trying to meet their needs.
The steps taken by the government over the weekend also allayed fears that the SVB could turn into a full-blown crisis.
“Monday will certainly be a stressful day for many in the regional banking sector, but today’s action significantly reduces the risk of contagion spreading,” Jefferies analysts Thomas Simmons and Anita Markowska said in a note to clients Sunday night.
CNN’s David Goldman, Nicole Goodkind, and Alison Morrow contributed to this report.
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