Is my money safe in the bank? Your banking failure follow-up questions answered

New York

Is my money safe? That’s the question on the minds of many banking customers after the stunning failures of Silicon Valley Bank and Signature Bank last week, along with the ongoing troubles at Credit Suisse — though the Swiss bank’s issues are very different from those that brought down the two US regionals. banks.

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

The FDIC insures depositors up to $250,000, but many companies used SVB as their bank and thus 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. Deposits abroad reached at least $13.9 billion and are also uninsured.

But before the markets opened this week, the Biden administration took an extraordinary step, guaranteeing that SVB and Signature customers will have access to all their money from Monday, even their uninsured deposits.

In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about.

Each deposit account holder will be insured up to $250,000 — so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.

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

Bank customers in Europe also have deposit protection.

In the UK, through the Financial Services Compensation Scheme, depositors can be refunded 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 services companies, including banks, who pay an annual levy.

In the European Union, failed bank customers 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 total of €200,000 ($210,956) in compensation.

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

It doesn’t make sense to take all your money from a bank, said Jay Hatfield, CEO of Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF. But make sure your bank is FDIC insured, which most big banks are.

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

But the crash is a good reminder to know where your money is being held.

“[It’s] it’s 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,” said Bankrate analyst Matthew Goldberg.

The FDIC has different resources on its website. The bank suite tool offers a list of FDIC-insured banking institutions, and the Electronic Deposit Insurance Estimator calculates the insurance coverage of different bank deposit accounts.

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

“Why not? If you have a million, why not have four accounts and insure them,” Hatfield said. “Why worry about it?”

That said, it’s also worth noting that you may already be insured for more than $250,000 at your current US 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 monitor their bank’s financial statements, regulatory filings, audit statements and other such materials to be able to identify red flags,” said Marbue Brown, a former customer experience executive at JP Morgan Chase who now works as Fortune 500 executive. consultant.

Additionally, much of the information that will help you truly measure the health of your bank is not public, such as deposit inflows and outflows, credit losses, and funding sources. And to the extent that they are reported, it is on a delayed basis at the end of each quarter.

So if a bank runs into trouble, those who know the bank’s books are more likely to see it first.

The banking sector should, in theory, be more stable due to regulatory reforms implemented after the 2008 crisis.

The US government’s actions over the weekend were also an attempt to prevent the next SVB, further stabilizing the industry after a chaotic week. The rise in interest rates meant that the cheap government bonds that SVB and other banks invested in years ago collapsed in value – last week’s bank run was sparked by SVB’s sale of these securities at a heavy loss to help pay for withdrawals of customer deposits, after people started withdrawing their money from the bank.

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

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

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