Is My Money Safe in the Bank?

For many entrepreneurs and business owners, hearing the news about Silicon Valley Bank may have set pulses racing and heads pounding. Clearly, the news wasn’t good; Silicon Valley Bank closed just two days after bad news about the bank’s capital reserves spread and depositors started pulling their money out of the bank. Once this bank run started, it became impossible to turn the tide, and the bank failed soon after the run began; at midday on Friday, March 10, bank regulators took over and made the Federal Deposit Insurance Corporation (FDIC) the bank’s receiver.

But this was not the end of the panic; in fact, one could say it was just the beginning. The contagion started to spread on Wall Street, and stock values of other small banks, such as Western Alliance, First Republic, and Signature Bank, dropped precipitously before the close of business that day.

The U.S. Federal Reserve Bank has had its work cut out for it; it’s had to reassure businesses and investors that their money was not in danger — even if it wasn’t in an account at Silicon Valley Bank.

So, what does all this mean for entrepreneurs and business owners? Well, very simply, their money is safe for now.

First of all, all bank depositors should know that the FDIC insures all deposits of $250,000 or less. So if the amount of money you have in a single account category (checking, savings, money market deposits, certificates of deposit [CDs], cashier’s checks, money orders, and other guaranteed bank funds) at a single bank is in this amount or less, it’s fully insured by the U.S. government — no matter what happens to the bank holding the account.

For entrepreneurs and business owners, the real concern is any money in an account category that’s greater than this amount. For instance, if you have $300,000 in an account category (at a single bank), only $250,000 of that money is insured. Obviously, a solution to this conundrum could be to split larger amounts into separate account categories (or even separate banks), so no account category or bank has more than $250,000, but this isn’t always convenient for the depositor.

Since the Silicon Valley Bank crisis unfolded, the U.S. Treasury, the Federal Reserve, and other bank regulators have taken pains to try and calm any anxiety among businesses and individuals about their bank deposits. While initially, it seemed that regulators were prepared to “backstop” all losses (beyond what the FDIC insured) at any banks that were in danger of failure, Janet Yellin was eventually forced to clarify that this policy would only cover banks that posed a “systemic risk” to the global financial system. In effect, this meant that — as in the financial crisis of 2008 — the regulators were concerned only with the largest banks, such as JPMorganChase, Bank of America, Citigroup, and Wells Fargo — the ones that were deemed to be, in the words of many observers, “too big to fail.”

While it’s unknown if another failure at a smaller bank — for instance, First Republic Bank — would trigger actions similar to what transpired with Silicon Valley Bank and Signature Bank, it should be stated that since Janet Yellin’s clarification, 11 large banks have put over $30 billion into First Republic Bank as a “rescue package.” Although it hasn’t yet happened, this action potentially could be matched by other banks taking similar actions with smaller or regional banks if they were deemed to be “at risk.”

Because of this, it doesn’t seem that any other banks are currently in the same boat as Silicon Valley Bank, although different commentators have varying opinions about whether the “banking crisis” is really over.

By some accounts, banks as a whole in the U.S. may actually have $2 trillion less than what’s “on their books” due to “unrealized” investment losses and other dubious accounting practices. Of course, how big this number really is depends on who you ask; according to some sources, this number is actually zero, or there may even be a surplus at the banks. But the lack of a uniform opinion should indicate that not everyone believes this “crisis” may be over. Very recently, the stock value of investment bank Credit Suisse tumbled to record lows until the central bank of Switzerland agreed to step in and lend it a “lifeline” of $54 billion.

It’s anyone’s guess what the markets will do in the coming weeks and how investors and businesses will respond to future news. But given how much uncertainty there is in the world right now, including tensions between the United States, Russia, and China — not to mention record-high inflation in many sectors — there’s certainly the potential for further market shocks and upsets.

If there’s any advice that can be offered to entrepreneurs and business owners, it would be to try and have less than $250,000 in each bank account category it’s tied up in. But barring that — if you want your money to be somewhat safer, you could consider moving it to one of the larger “systemically important banks.” 

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