About FDIC Insurance and SVB

As you can imagine, I have been getting questions about FDIC insurance. We have taken steps to work with financially secure firms, all of which have posted a response to the current SVB and banking concerns.

Since we work with many retirees and higher-income professionals who have over the $250,000 FDIC limit, I did want to address our thoughts.

Deep breath. Let's discuss.

Should we be panicked about these bank failures?

No. Here's why:

The affected banks are small in the context of the overall banking system.

(Note, I added SEI Private Trust Company to the above image for reference. We custody a large number of client account at SEI, so it's helpful to see their Assets Under Management AUM) / Assets Under Advisement (AUA))

You can see in the chart above how small the two failed banks are relative to other, larger financial institutions.¹

They also serve high-risk niches. These banks have a lot of exposure to cryptocurrencies, startups, and other highly volatile asset classes.²

Those risky assets can make them more vulnerable to bank runs and liquidity issues. Which is what we're seeing happen.

Hopefully, all our clients will have a sense of financial stability when we hear FDIC Insurance hit the news.

Silicon Valley Bank (SVB) grew from $49 Billion in deposits in 2018 to $189.2 billion in 2021 (NYT 03/14/2023 ³). 

Realize, the depositors are also real people.

I get it, there are a lot of people upset with what seems to have been a bailout. Now that the FDIC has come in, all deposits have been backed. Everyone who had money in the bank is able to get their funds out.

Realize, the people who banked there are still people. The companies who banked there have real people on payroll. This was understandably an uneasy time. 

SVB is not a normal bank.

When events like Silicon Valley Bank and Signature Bank happen, it's natural to wonder how a bank safeguards your funds. Fortunately, the Federal Deposit Insurance Corporation (FDIC) insurance was designed for this very reason: to help protect your funds once deposited.

The FDIC is an independent government agency that protects bank depositors from the loss of uninsured deposits at an FDIC-insured bank. This organization oversees FDIC deposit insurance, which protects bank customers if an FDIC-insured institution fails. In other words, FDIC insures your money at the bank.

In the event of a bank failure, the FDIC provides depositors with an insurance payout of up to $250,000 per depositor, per institution, and per ownership category. If your bank is an FDIC-insured institution, you don't need to apply for FDIC insurance because coverage is automatic.

With SVB and Signature Bank, banking regulators took the extraordinary step of designating both banks as systemic risks to the financial system, giving regulators flexibility to backstop the uninsured deposits. Regulators hoped that by protecting these deposits, they would bolster confidence in the banking system.

I don't see this as the same type of bail-outs the financial industry saw in the aftermath of 2008's Global Financial Crisis.

Bank heads and stockholders are going to feel that pain.

Will more banks collapse?

That’s very possible. Moody’s, a rating agency, reported that it’s watching several other institutions with potential problems.⁴

Some larger banks may be affected as well, but it looks like regulators are stepping in quickly to protect the overall financial system.

We expect the government’s quick actions will boost trust in the banking system, yet these events may have an impact on longer-term economic growth.

We're keeping a close watch on the situation and plan to provide you with additional updates as the situation evolves.

^{1 https://www.cnn.com/2023/03/13/investing/silicon-valley-bank-collapse-explained/index.html}

^{2  https://www.cnbc.com/2023/03/14/moodys-cuts-outlook-on-us-banking-system-to-negative-citing-rapidly-deteriorating-operating-environment.htm}

^{3 https://www.nytimes.com/2023/03/14/business/silicon-valley-bank-gregory-becker.html?searchResultPosition=15}

^{4 https://www.cnbc.com/2023/03/14/moodys-cuts-outlook-on-us-banking-system-to-negative-citing-rapidly-deteriorating-operating-environment.html}

Want to learn more about FDIC insurance? Here's another great article you can read.

Understanding FDIC Insurance