On Friday, March 10, the Silicon Valley Bank collapsed. In a joint statement Sunday, the U.S. Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. (FDIC) announced that all deposits at the bank would be guaranteed, but not at the expense of taxpayers.
Bank failures can understandably cause consumers to worry about their own funds. Fortunately, there is generally no need for panic. Here are all your questions on bank failures, answered.
What caused the recent bank failure?
The short answer to this question: a bank run. This happens when lots of depositors withdraw their funds in cash at the same time causing the bank to run out of cash.
Just two days before the SVB collapse, the bank’s CEO, Greg Becker, sent a letter to shareholders informing them that SVB had lost $1.8 billion on the sale of U.S. Treasury and mortgage-backed securities. This sparked panic among the bank’s customers, who collectively withdrew $42 billion from their accounts on Thursday. By Friday morning, SVB had a negative $958 million cash balance. The FDIC took over SVB and established the new Deposit Insurance National Bank of Santa Clara.
Are bank failures a regular occurrence?
While it’s always alarming to learn of a bank failure, they do occur more frequently than most people assume. According to the FDIC, there have been a total of 563 bank failures since 2001. However, this failure was also fairly significant, coming in as the second-largest bank failure in history, topped only by the fall of Washington Mutual in 2008.
What do the failures mean for the banking industry?
According to the Fed: “The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry.” This statement refers to the reforms placed on the banking industry during the 2008 financial crisis. The Fed also announced it will create additional sources of liquidity through the creation of a fund that would safeguard deposits.
Will bank customers get their deposits back?
All deposits at federal banks are insured by the FDIC up to $250,000. This applies to both corporate and personal accounts. The U.S. government has also announced that all customers of the failed bank will get their deposits back, including those worth more than $250k.
The FDIC will facilitate buyers for SVB and Signature Bank. It will also sell off SVB’s assets to be used for future disposition.
Is my money safe at a credit union?
It is important to understand the differences between a Credit Union and Silicon Valley Bank. As a bank catering to those in the volatile tech industry, only 10% of SVB’s deposits were federally insured because the related accounts exceeded the FDIC’s $250,000 insurance limit. Credit Unions are structured very differently and 93.5% of all deposits in Vermont credit unions are federally insured.
With 802 credit union, you can rest assured that your deposits are safe. In order to maintain the safety of members’ money, our institution undergoes regular examinations by financial regulators. The National Credit Union Administration (NCUA) insures all deposits up to $250,000. Visit MyCreditUnion.gov for more information about the National Credit Union Share Insurance Fund coverage for consumers.
By understanding the key differences between banks and credit unions, and the various protections in place, you can feel confident in the safety and security of your deposits.
