SVB Collapse: How to Protect Your Money in the Event of a Bank Failure
By The collapse of Silicon Valley Bank (SVB) has left many people wondering if their money is safe in their bank accounts.[0] SVB, once a powerful lender for venture startups, specialized in banking for tech startups and had $209 billion in assets as of December 31, 2022.[1] 1) a ton of recent deposits from one concentrated industry,[2] A surprisingly large amount of large depositors (business-sized accounts) were not insured by FDIC.[2] A ratio of securities with unrealized losses that is higher than normal compared to its total capital.[2]
Due to weak risk management practices, SVB was vulnerable to a depositor rug-pull that forced them to sell securities at a big loss, leading to its collapse.[3] This also had a cascading effect on other banks with similar asset and deposit profiles.[4]
The Federal Deposit Insurance Corporation (FDIC) provides insurance against deposit losses up to $250,000 per depositor, per bank, for every account ownership category.[5] Additionally, depositors can open multiple accounts at different banks, or open joint checking accounts, which would insure up to a total of $500,000 in the account ($250,000 per person).[6]
Senator Bernie Sanders and Elizabeth Warren both blamed the collapse on Donald Trump’s 2018 bank deregulation bill, citing that SVB and Signature Bank would have been subject to stronger liquidity and capital requirements had the bill not been passed.
It is important to note that most large banks are in far better financial shape than small ones, and are less at risk of liquidity draining from them than small banks.[7] Consequently, the majority of big banks are in good condition.[2] However, it is still important to understand the risks associated with banking and to know what measures you can take to ensure your money is safe in the event of a bank collapse.[6]
0. “Here's who made money amid the Silicon Valley Bank turmoil” ABC News, 17 Mar. 2023, https://abcnews.go.com/Business/made-money-amid-silicon-valley-bank-turmoil/story?id=97877087
1. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html
2. “March 2023 Newsletter: A Look at Bank Solvency” Lyn Alden, 13 Mar. 2023, https://www.lynalden.com/march-2023-newsletter/
3. “The End of Silicon Valley (Bank) – Stratechery by Ben Thompson” Stratechery by Ben Thompson, 13 Mar. 2023, https://stratechery.com/2023/the-death-of-silicon-valley-bank/
4. “Former FDIC Chair on Bank Collapses, the Federal Reserve and “Potential Fragility” in the Financial System” PBS, 16 Mar. 2023, https://www.pbs.org/wgbh/frontline/article/former-fdic-chair-bank-collapses-federal-reserve/
5. “FDIC insurance: Here's how certain bank deposits are backed by the government” Yahoo News, 13 Mar. 2023, https://news.yahoo.com/fdic-insurance-heres-how-certain-bank-deposits-are-backed-by-the-government-180015108.html
6. “Is my money safe in the bank right now? More depositors are wondering after SVB's collapse” USA TODAY, 15 Mar. 2023, https://www.usatoday.com/story/money/2023/03/15/bank-safe-collapse-protect-money-svb/11474023002
7. “Government fear-mongering over Silicon Valley Bank — and how to profit” New York Post , 15 Mar. 2023, https://nypost.com/2023/03/15/government-fear-mongering-over-silicon-valley-bank-and-how-to-profit/
