SVB Fallout: Is my money safe?
New York (CNN) The question that has plagued so many bank customers following the stunning collapse of Silicon Valley Bank: Is my money safe?
On Friday, the independent government agency known as the Federal Deposit Insurance Corporation acquired the Silicon Valley bank, which financed nearly half of the US’s venture capital-backed technology and healthcare companies. The drastic move came after the bank announced that it had sold a number of securities at a loss, and 2.25 billion worth of new shares were withdrawing their money immediately. Because banks don’t literally keep all their cash deposits in a vault somewhere, this can bring a bank to a standstill, leaving customers potentially unable to get their money out before a bank collapses.
And there was a lot to lose. The FDIC insures depositors up to $250,000, but since many larger corporations used the SVB as their bank, they had much more than that in their accounts. US customers held at least $151.5 billion in uninsured deposits by the end of 2022, according to SVB’s latest annual report. 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 SVB customers will have access to all their money, even uninsured deposits, starting Monday.
This step was taken to regain confidence in the banking system. Economists and analysts speaking to CNN Business worried the fallout from SVB would fuel more bank runs on Monday, while also helping companies that bank large deposits continue to payroll and fund their businesses.
Do I need to worry about cash held at my bank?
In short, if you have less than $250,000 in your account, you almost certainly have nothing to worry about. That’s because the US government insures the first $250,000 of eligible accounts.
Many SVB customers had deposited well over $250,000 and now that they aren’t getting their money, some companies are struggling with payroll.
Should I withdraw my money from my bank?
It doesn’t make sense to take all your money out of one bank, said Jay Hatfield, CEO of Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF. However, make sure your bank is insured with the FDIC, which is the case with most major banks.
“I don’t think people should panic, but it’s just wise to have insured versus uninsured deposits,” Hatfield said.
But if I don’t run to get my money from the bank now, won’t it go away?
Your money is most likely going nowhere.
Overall, normal consumers should hardly be affected. But the breakdown is a good reminder to be aware of where your money is kept and not have everything in one place.
“The first bank failure since 2020 is a wake-up call for people to always make sure their money is with an FDIC-insured bank and is within FDIC limits and compliant with FDIC rules,” said Matthew Goldberg, a Bankrate analyst.
The FDIC has various resources on its website. The Bank Suite tool provides a list of FDIC-insured banking institutions, and the Electronic Deposit Insurance Estimator calculates insurance coverage for various bank deposit accounts.
Hatfield advised dividing his money between the banks so that each had a maximum of $250,000.
“Why not? If you have a million, why not have four accounts and get them insured,” Hatfield said. “Why worry about that?”
Is 2008 already over?
The banking sector should theoretically be more resilient due to the regulatory reforms introduced after the 2008 crisis.
Government action this weekend is also trying to prevent the next SVB and further stabilize the sector after a chaotic week. Rising interest rates meant cheap government bonds that SVB and other banks invested in years ago were crumbling in value – last week’s bank run was sparked when SVB sold these securities at heavy losses to support withdrawals from customer deposits after the People started withdrawing their money from the bank.
\The Fed also said it will offer banks loans for up to a year in exchange for US Treasuries and mortgage-backed securities that have fallen in value. The Fed will recognize the original value of the debt for the banks making the loans.
The Treasury will also provide $25 billion in loan protection to insure against banks’ losses, which should help banks easily access cash when needed.
“The Fed shielded 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, government action was expected to prevent a broader crisis that would lead to more bank runs.
“If they do that, it will prevent this panic from spreading to other banks and solve many of the problems, at least in the short term,” economist Richard Duncan said on Sunday. “If we start to see significant banking panics, it will have wider implications for the entire US economy.”
SVB was among the top 20 American commercial banks with total assets of $209 billion late last year and financed nearly half of US venture-funded technology and healthcare companies.
Every bank has losses on its securities and uninsured deposits. US banks were sitting on $620 billion in unrealized losses (assets that have fallen in price but not yet been sold) at the end of 2022, according to the FDIC.
Still, there’s no reason to panic just yet, analysts say.
“[Falling bond prices are] only really a problem in a situation where your balance sheet is going down pretty quickly… [and you] Sell assets that you wouldn’t normally have to sell,” said Luc Plouvier, senior portfolio manager at Van Lanschot Kempen, a Dutch wealth management firm.
Most major US banks are in good financial shape and will not find themselves in a situation where they are forced to take bond losses, Grünberg said.
A rescue of the Silicon Valley bank itself was not considered, Yellen said in an interview with CBS on Sunday.
“Let me be clear that during the financial crisis there were investors and owners of systemically important big banks that were bailed out … and the reforms that have been put in place mean we won’t do that again,” Yellen told CBS. “But we are concerned about depositors and focused on meeting their needs.”
Government action taken over the weekend also allayed fears that SVB could become a full-blown crisis.
“Monday will certainly be a stressful day for many in the regional banking sector, but today’s actions dramatically reduce the risk of further contagion,” Jefferies analysts Thomas Simons and Aneta Markowska said in a note to clients Sunday night.
CNN’s David Goldman, Nicole Goodkind, and Allison Morrow contributed to this report.