Silicon Valley Bank and FDIC Insurance
The NBA star Giannis Antetokounmpo had dozens of accounts at different US banks with $250,000 in each one. He knows that $250,000 is the per person limit at each bank to qualify for FDIC insurance. Why did this young athlete take the time to learn US banking regulations? Because Giannis was born and raised in Athens, he witnessed Greece’s 2008 financial crisis up close and personal. As a result, financial regulation was probably more important to him than the average investor.
Giannis Antetokounmpo is cool as a cucumber knowing his bank deposits are FDIC-insured. (Source: Fansided)
When it comes to the failure of Silicon Valley Bank, we can take a couple pointers from Giannis's banking habits before a crisis hits.
1. What happened?
News will continue to come out as regulators parse through the bank’s records, but it appears that this was an old-fashioned bank run.
Silicon Valley Bank had many start-up and tech companies as clients. As those industries grew, they deposited more and more cash with Silicon Valley Bank. Silicon Valley turned around and made loans (as banks do) and also bought very safe – but longer term – Treasuries and mortgage-backed bonds.
In 2022, declines in both the bond market and stock market made it harder for companies to raise money from new investors. Start-up and tech companies started to withdraw cash instead of deposit it. In 2023, withdrawals accelerated and Silicon Valley Bank struggled with redemption requests. Panicky venture capitalists told their portfolio companies to withdraw their money last week. A flood of redemptions ensued, causing an old-fashioned bank run. On Friday, the FDIC stepped in and closed the bank. Additionally, the Federal Reserve said they would guarantee and make all depositors whole, even those with accounts above the FDIC limit.
2. Does this impact me directly?
No, almost certainly not. If you have accounts at Silicon Valley Bank, please let us know. No client accounts managed by Black Barn directly own any shares of Silicon Valley Bank or CDs issued by Silicon Valley Bank.
While you may indirectly own shares of Silicon Valley Bank inside your mutual funds and/or exchange-traded funds, the exposure is minimal.
3. What should I do about my bank accounts now?
Your cash is protected up to FDIC insurance limits. Each person is insured up to $250,000 at each bank where they have accounts. Joint accounts are insured up to $500,000.
Like Giannis, we are careful when we invest in bank CDs, making sure we don’t commit more than the FDIC limit in any one bank. But, if you keep a lot of cash and want to check whether you are potentially exceeding FDIC insurance limits, we can help. Please collect the name(s) of your bank(s), name(s) of the account owner(s), and account balances for each. Include savings, checking, high-yield savings, and certificates of deposit. We will cross-check your accounts with any cash and CDs you have at TDA/Schwab to ensure you are under FDIC insurance limits, and we’ll let you know if there is any action to take.
4. Is this a replay of 2008-2009?
No.
As a whole, the financial system is in very good shape, thanks to the additional regulations put in place after the Great Financial Crisis (specifically, the Frank-Dodd Act). The financial system is much stronger now than it was then.
That said, there’s no reason to take any risk with cash you keep in the bank. FDIC limits are there for a reason.