The last few weeks have seen the extraordinary collapse of three regional banks (Silicon Valley Bank, Signature Bank, and Silvergate), the rescue of a fourth (First Republic), and overseas, the takeover of Credit Suisse by UBS. We haven’t had problems of this magnitude in the U.S. financial sector since the Great Financial Crisis of 2008.
So far, those most directly impacted by today’s banking crisis seem to be business customers in the tech and venture capital spaces (SVB), the cryptocurrency sector (Silvergate), and wealthy clients generally (Signature Bank). But what about you? How safe is your money at your bank?
The first line of defense
Step one in banking safely is making sure your deposit amounts are within the FDIC’s $250,000 limit. That limit is “per depositor, per FDIC-insured bank, per ownership category.” So, an individual savings account is covered up to $250,000, whereas a jointly-held account would be insured up to $500,000 ($250,000 per depositor). The FDIC offers a helpful Electronic Deposit Insurance Estimator that enables you to calculate how much of the money you have on deposit at a bank is protected by FDIC insurance.
At credit unions, the National Credit Union Administration (NCUA) guarantees deposits up to $250,000 per individual account holder, or $250,000 per person for joint accounts. Some credit unions are protected by a private insurance company, American Share Insurance (ASI), which covers up to $250,000 for each account held by a member of an ASI-insured credit union.
Anyone who keeps more than these amounts at a bank or credit union would be wise to spread their money across multiple institutions to make sure their money is fully insured.
What about the vast majority of people who have less money on deposit with a bank or credit union? Should they be concerned? What would it look like if you had to utilize the FDIC's insurance? According to the FDIC, in the unlikely event of a bank failure, its “goal [is] to make deposit insurance payments within two business days of the failure of the insured institution.”
How strong is my bank?
Still, no one wants the stress of wondering whether they will be able to take money out of a bank when they need or want the money. Is there a way to assess the financial health of a particular bank? Unfortunately, the answer is, “Yes and no.” I don’t know of any single source of information that can easily tell you whether a bank is on solid ground.
That said, we’re starting to see articles popping up that are calling attention to possible areas of concern in some banks. For example, this MarketWatch article highlighted 20 banks that have potential investment losses on their books, which was one of the issues that plagued SVB and the other banks that failed recently. When large numbers of depositors suddenly withdrew their funds, the banks had to sell securities at a loss to raise money.
Among the 20 banks listed in the MarketWatch article is Ally Bank, which SMI has mentioned in past articles, highlighting its helpful benefit of allowing savers to set up multiple saving accounts and name them for different purposes.
If you have money at Ally, does that mean you should switch banks? Not necessarily. There are other factors to consider. Is Ally’s customer base similar to that of the banks that failed recently? Probably not. Are there any reasons to believe its customers are likely to start pulling money out in mass, forcing the bank to sell investments that have gone down in value? That does not appear to be the case. Most importantly, being an online bank, Ally pays competitive interest rates on deposits, whereas a primary driver of the trouble brick-and-mortar banks have had lately has been losing customers due to their paltry rates.
Upping your game
At SMI, we have consistently advised readers to play the long game and not react to every short-term market move or news article. But this whole banking crisis episode has highlighted perhaps a bit of complacency on the part of savers, where the interest rate or sign-up bonus offered have become the dominant factors in deciding where to bank. Such decisions would likely benefit from a little more research.
For the more analytically-minded, the FDIC maintains a lot of data about the strength of the banks it insures. To be sure, there’s a danger here. You could get lost in the sea of data or become overly and perhaps even unfairly focused on one particular metric. However, taking the time to learn a bit more about some of a bank’s key performance indicators, and then comparing a couple of banks you’re considering on those indicators, may help you make the best choice.
Still, your best protection is making sure the amount of money you have on deposit is within the insurance limits.
