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“Is My Money Safe?” Real Answers For What’s Happening At U.S. Banks 

Karen Finerman  |  March 15, 2023

With two banks collapsing and big announcements from the FDIC and Treasury, what's actually going on? (And what does it mean for your money?)

If you’ve recently Googled the question: “Is my money safe?” you’re not alone. Searches have spiked sky-high since the failure of Silicon Valley Bank (SVB) and Signature Bank (SBNY) over the past few days. Thankfully, the answer is easy: Yes, as long as you have less than $250,000 (as an individual) or $500,000 (jointly) in cash or CDs at a single institution, which is the official amount insured by the Federal Deposit Insurance Corporation (FDIC). But  based on the moves the government recently made, you may also be insured even if you have well over the FDIC limits… Why? 

The FDIC and Treasury made two very big announcements on Sunday night that changed the game.   

Announcement #1: The FDIC took over Silicon Valley Bank and Signature Bank and placed them in newly created government-owned entities. These entities will oversee the dissolution of these two banks, and the two banks will no longer operate. But most importantly, the government is backstopping depositors in both Silicon Valley Bank and Signature Bank so they won’t lose a thing, even if they had millions in the bank. In other words, depositors will have access to all their funds, which for a time, many believed would not happen. The management teams of both banks were fired. And sadly, thousands of employees who worked at these banks, many of them for years, will no longer have jobs. As for stock and bondholders these two banks, the picture is about as ugly as it gets: The stock of both SVB and SBNY is worth ZERO.  

JOIN US: Together with HerMoney’s founder and CEO Jean Chatzky, Karen Finerman runs InvestingFixx, HerMoney’s investing club for women. We discuss the markets and dig into investments. Learn more here!

Announcement #2: The government created a new facility to help out banks that were having similar problems to the two failed banks. These banks had taken deposits (i.e. short term money that could be withdrawn at will) and locked that money up in “safe” yet long-dated government bonds. As interest rates went up, those long-dated bonds started trading at a big discount (i.e. a loss) to the purchase price. (Why? Although it’s true that these bonds were considered “safe” because they were government debt, the fact that they were so long-term put them at risk. As the Fed raised rates over the last 18 months, the interest rates these bonds were paying paled in comparison to the newly issued ones – so their prices fell). This new government facility allows banks such as First Republic and others to bring their assets to the FDIC and get a loan of 100 cents on the face amount of those securities, even if they are currently trading at something well below that. Remember it was fleeing deposits (both from depositors seeking higher rates elsewhere and from depositors fearing the health of banks) that caused these banks to need to sell their assets in the first place, in order to meet depositors’ demands for the cash back.

So, Where Are We Now? 

To me it’s vague (I believe intentionally) as to whether the government has now taken on the burden of insuring all bank deposits regardless of size. Yesterday, regional banks got absolutely annihilated on fears that they, too, would have the same problems as Silicon Valley Bank and Signature Bank, and concerns that if the government doesn’t guarantee all deposits, depositors will need to move their money to one of the SIBs (systemically important banks that are typically the ones seen as “too big to fail”) in order to feel secure about their money. Many regional bank CEOs came out on CNBC and other networks to calm investors and point out the strength of their institutions, and how important they are to the regions in which they do business. The panic cooled to a boil, but nonetheless, billions of dollars of value in bank stocks were decimated. Granted, some of that was deserved because of the many things we still don’t know, such as: What will the new regime of banking look like? Will more and tighter restrictions be put in place? An how will that affect the ability of banks to earn profits?  

Today, banks are rallying very sharply on the thought that the baby may have been thrown out with the bathwater yesterday, and the expectation that the Fed will stop raising interest rates (rates have dropped precipitously since Silicon Valley Bank’s failed capital raise on Thursday night). The effect of lower interest rates alone is helping to increase the value of some of those underwater “safe” assets that banks own – and that helps. There’s also the hope that some challenged banks will be able to raise money to shore up their balance sheets.  

Is The Idea of a Backstop as Good as a Backstop IRL? 

One phenomenon that’s very interesting to me is the idea of the government backing all deposits – just the idea alone, with no new information, has been enough to calm the very agitated financial markets. They’ve given the markets a nod that they will back all deposits, but it’s really no more than just that, a nod. (The only amounts that remain officially insured by the FDIC are $250,000 for individuals or $500,000 for a joint account. (As my colleague Jean Chatzky told her readers today: “If you have more than that with a single institution, no matter how large that bank is, it’s time to consider moving it somewhere else. The good news is: These days, you don’t need to look far to earn more than 4% on your money.”) 

All this reminds me of when, during the pandemic, the Fed came out and said, basically, “We’ll buy all types of securities, Government bonds, Investment grade bonds, even high yield bonds.” That announcement was enough to calm the terrified financial markets, and in the end, the government didn’t even need to buy very many corporate investment grade or junk bonds at all. Merely the stating that they were willing to do it had the desired effect. And I think this idea of the government insuring all deposits is the same phenomenon. No, they haven’t actually said they will, but everyone’s feeling a lot calmer, and I suspect thinking: If they’re going to do it for a few institutions, they’d need to do it for all.

JOIN US: Together with HerMoney’s founder and CEO Jean Chatzky, Karen Finerman runs InvestingFixx, HerMoney’s investing club for women. We discuss the markets and dig into investments. Learn more here!


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