Is my money safe in the bank? Your bank failure questions, answered

New York

Is my money safe? That’s the question on the minds of many banking clients following the stunning failures of Silicon Valley Bank and Signature Bank over the past week, along with the current problems at Credit Suisse – although the Swiss bank’s problems are very different from those facing the two US regional banks.

A bank run on Silicon Valley Bank led to the Federal Deposit Insurance Corporation taking control of the bank last Friday in the second largest bank failure in US history. Two days later, the FDIC also acquired Signature Bank.

The FDIC insures depositors up to $250,000, but many companies used SVB as their bank and so had much more than that in their accounts. According to the SVB’s latest annual report, U.S. customers held at least $151.5 billion in uninsured deposits by the end of 2022. 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 and Signature clients would have access to all their funds, even their uninsured deposits, starting Monday.

Basically, if you have less than $250,000 in your account with an FDIC-insured U.S. bank, you almost certainly have nothing to worry about.

Each deposit account owner is insured up to $250,000. For example, if you have a joint account with your spouse, your money is insured up to $500,000.

If you bank through a federally insured credit union, your deposits are insured at least up to $250,000 by the National Credit Union Administration, which, like the FDIC, is backed by the full trust and credit of the U.S. government.

Bank customers in Europe also have deposit protection.

In the United Kingdom, through the Financial Services Compensation Scheme, depositors can recover up to £85,000 ($102,484) if their bank fails, doubling to £170,000 ($204,967) for joint accounts. The FSCS is funded by financial service providers, including banks, who pay an annual fee.

In the European Union, customers of failing banks are promised €100,000 ($105,431) of their deposits under a Deposit Guarantee Scheme, which is funded entirely by banks. Joint account holders can receive a combined compensation of €200,000 ($210,956).

In Switzerland, Swiss deposits are insured by the regulator FINMA up to 100,000 Swiss francs.

There’s no point in taking all your money out of a bank, says Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF. But make sure your bank is insured by the FDIC, which most major banks are.

“I don’t think people should panic, but it just makes sense to have insured deposits versus uninsured deposits,” Hatfield said.

But the collapse is a good reminder to be aware of where your money is being held.

“[It’s] is a wake-up call for people to always make sure their money is with an FDIC-insured bank and within FDIC limits and under FDIC rules,” said Matthew Goldberg, a Bankrate analyst.

The FDIC has several resources on its site. The “banking suite” tool provides a list of FDIC-insured banking institutions and the Electronic Deposit Insurance Estimator calculates the insurance coverage of various deposit accounts at banks.

Hatfield’s advice was to divide your money between banks.

“Why not? If you have a million, why not have four bills and get them insured,” said Hatfield. “Why worry about that?”

That said, it’s also worth noting that you may already be insured for more than $250,000 with your current U.S. bank if you have more than one deposit account there or if you have a joint account.

As an individual customer it would be almost impossible.

“[Customers] should keep track of their bank’s financial statements, regulatory records, audit reports and other such material to identify red flags,” said Marbue Brown, a former JP Morgan Chase Customer Experience Executive who now works as a Fortune 500 executive. manager consultant.

In addition, much of the information that could help you truly gauge the health of your bank is not public, such as deposit inflows and outflows, credit losses, and funding sources. And as far as they’re reported, it’s on a deferred basis at the end of each quarter.

So if a bank gets into trouble, those who know about the bank’s books will see it happen first.

The banking sector should in theory be more stable thanks to the regulatory reforms introduced after the 2008 crisis.

The actions of the US government over the weekend were also an attempt to prevent the next SVB, further stabilizing the industry after a chaotic week. Rising interest rates caused cheap government bonds that SVB and other banks had invested in years ago to crumble in value – last week’s bank run was caused by SVB selling those securities at a significant loss to help customers withdraw deposits after people lost their money started to pick up the couch.

The Fed also said it will offer bank loans for up to a year in exchange for US Treasuries and mortgage-backed securities that have lost value. The Fed will honor the original value of the debt to the banks that take the loans.

The Treasury will also provide $25 billion in credit protection to insure against bank losses, which should help banks easily access cash when they need it.

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