Recent Bank Failures: why we stress Position of your financial model (March 2023)

Since Friday we saw two very large bank failures: Silicon Valley Bank and Signature Bank. These were two of the largest bank failures in U.S. history. Given the attention to these events, Rob and I wanted to share a few thoughts.

So, what exactly happened?  While there’s a lot more to this story, it all boils down to an old-fashioned bank run, not much different from the events of George Bailey’s wedding day in “It’s a Wonderful Life.”  The bank simply couldn’t keep up with a surge of withdrawals from depositors.  In the interest of maintaining systemic confidence, the Federal government took over, announcing that depositors would be fully protected and that funds were being made available to support banks under stress. 

Could this be the beginning of another financial crisis?  No one knows for certain, but it’s highly unlikely.  Keep in mind that there have been over 200 lesser-known bank failures since 2008 that were resolved in an orderly fashion.  So, even if more cracks emerge or more banks come under pressure from depositors, not only is the system capable of handling more stress, the government has made it clear that it will take steps to avoid systemic contagion.

Is there anything you should do from a practical standpoint?  If you haven’t already, make sure your bank is an FDIC insured bank.  Also, remember that FDIC insurance only covers up to $250K per depositor, so if you have more than $250K in an individual account at a bank, consider better options.  If you’re married, you can get up to $1 million of FDIC coverage at one bank by having one account in your name, one in your spouse’s, and a joint account (FDIC covers up to $250K for each co-owner of a joint account).  You could also open accounts at other FDIC-insured banks.  If you have questions, give us a call and we can walk you through various cash management options and how to best protect yourself.

We understand that news of bank failures can be unsettling, but things like this happen all the time and are never predictable.  That’s why our approach to wealth management doesn’t rely on predicting the next crisis or how markets will perform, but rather positioning ourselves effectively and maintaining balance between risk and safety, such that we can weather whatever unpredictable events the markets, the world, and life can throw at us.

Please let us know if you’d like to discuss these developments further or have any questions.

Best Regards,