Banking Failures, Runs, and Rates: 8 Things Everyone Should Know
Much has been written about the failures of Silicon Valley Bank, Credit Suisse, and (pending) others.
Instead of contributing to the speculation, we’ll skip ahead to the TL; DR (Too Long; Didn’t Read).
Here are our most asked questions about banking and investor protection this month:
What Does This Mean for Interest Rates And The Economy?
Bank activity will be finishing the job the Federal Reserve started:
We’re looking at what’s happening among the banks and asking, is there going to be some tightening in credit conditions, and then we’re thinking about that as effectively doing the same thing that rate hikes do. So in a way, that substitutes for rate hikes." -Federal Reserve Chair Jerome Powell
As banks assess the current situation, they are likely to be stricter with the loans they make. If true, it means higher loan rates, collateral, and credit scores are needed to borrow money. By default, the economy should slow, and inflation will continue to drop.
The Fed will be less likely to keep increasing interest rates from these levels.
2. Who’s getting a Bailout this time?
Banks will fail, but deposits will not (for now).
“The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.” - Treasury Secretary Janet Yellen
Depositors with accounts over the FDIC $250k limits have been guaranteed by the Government and FDIC.
Meanwhile, SVB Corp has been sold for pennies on the dollar to First Citizens, and Credit Suisse was bought by Roval UBS. There’s no individual bank bailout happening.
3. Is This The 2008 Financial Crisis All Over Again?
Probably not, according to most banking experts.
This is not something that is spread across the entire banking system. This isn’t like it was last time. This is not a credit crisis. This is a situation where a few banks have some problems and it’s better to make sure we nip that in the bud." - Citigroup CEO Jane Fraser
4. Are my deposits safe in our local banks?
The government has made it clear that deposits are safe, especially if they sit below FDIC limits. As far as their financials, things look healthy from our perspective. You can read statements from our local banks:
Tri Counties Bank: https://www.tcbk.com/message
Golden Valley Bank: https://info.goldenvalley.bank/ceo-message
5. How Much does FDIC Insurance Cover?
$250k per person listed on an account.
6. How Do People Insure Deposits Over $250k
You can open accounts at other banks, (or ask if your bank has a cash sweep program such as Intrafi)
Move money to a brokerage account, and buy Treasury Bills, which have an unlimited U.S. Government Guarantee.
7. What Kind of Interest Rates Are Available in Treasury Bills?
The Fed Funds target rate has been increased to 4.75%, which means several treasury bonds and money market funds are yielding close to 4.5% currently.
8. Do Brokerage Accounts have investor protection?
Yes- Securities Investor Protection Corporation Coverage protects against loss ($500,000 in securities and a $250,000 limit for cash) when held by a customer at a financially-troubled SIPC-member brokerage firm.
In addition to SIPC protection, Our custodian Fidelity provides its brokerage customers with additional "excess of SIPC" coverage through Lloyd's of London. The total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion.
You can read more HERE: Fidelity: FDIC, SIPC, and Protecting Your Accounts
If you have concerns about your cash, give us a call at 530-487-1777