If there’s one thing that history has taught us about bank runs, it’s that panic begets panic when one financial institution falls. As anxiety spread through and beyond the Bay Area last week after the collapse of Silicon Valley Bank, rumors began swirling that the famed tech financial institution would drag others down with it.
Then Monday kicked off with several banks seeing trading halted in their shares because the stocks were falling so fast. If you have money in a bank that has seen its stock price plummet and trading halted, it is important to know that the announcement of the Federal Reserve's Bank Term Funding Program went a long way toward preventing a bank failure domino-effect. Experts agree that while the stock market is in for a volatile ride, these are not echos of the terrible 2008 Financial Crisis. “Consumers need to separate falling stock prices and volatile trading from their actual deposits in the bank,” explained Mark Neuman, financial advisor and CIO of Constrained Capital. “Their investments in the stocks of these banks could be at risk. Deposits in banks up to $250,000 are not at risk so long as the bank is FDIC protected,” he added.
The magic number that the FDIC insures for many accounts is $250,000, yet the Fed’s policy for depositors at SVB has pledged to cover uninsured deposits to prevent widespread financial collapse. “In the end, if you have your money in SVB and it's $250,000 or less, you'll be fine. It's insured. If you have more than that in there, they'll likely protect you anyway,” added Neuman.
“[The Federal Reserve’s policy] sends a powerful signal that depositors will be made whole in the current environment and also removes the mark-to-market risk that many were worried about,” explained analysts at Morningstar in Monday morning research note. “These steps should go a long way toward being a circuit breaker on the current panic in the financial system, although we're not sure there is a way to undo the psychological change,” they added.
What banks are in trouble?
First Republic Bank shares plummeted 75% on Monday after declining 35% last week, leading the way down for banks that have been collateral damage of SVB’s bank run last week. Trades of the company were paused Monday morning due to the sharp decline in stock price, even after the bank received rescue liquidity from the Federal reserve and JPMorgan Chase on Monday. The funding raises the bank’s unused liquidity to $70 billion.
Regional banks have especially been impacted by the carnage. As of midday Monday, Comerica Bank, a Dallas, Texas-based financial institution, saw its shares plunge 30%. KeyCorp, which operates KeyBank, saw a similarly steep decline, falling 28% by midday Monday. First Horizon shares were down over 20%, and trading was paused. Yet it's important to keep in mind all of these banks are covered by FDIC insurance, so depositors who are within $250,000 do not need to panic that their cash is at risk of disappearing even in the unlikely event more banks do fail.
In a statement released over the weekend, First Republic Bank founder Jim Berbert and CEO Mike Roffler told depositors that the bank’s liquidity positions are “very strong, and its capital remains well above the regulatory threshold for well-capitalized banks.”
Is my money safe in the bank?
While seeing all red next to the ticker of your financial institution is understandably concerning, if you have money in these banks, you should not take their stock price plummeting as a sign they are going to fail. “From a depositor’s standpoint, the decision by the government to stand behind all of the deposits also reduces the risks of further bank runs,” explained Brand McMillan, Chief Investment Officer for Commonwealth Financial Network. “With a more solid system and the government being aggressively proactive, as of right now, there looks to be little systemic risk in place. We won’t see another Great Financial Crisis,” he added.
So, what can you do if you have money in one of these banks? “During a time like this, consumers should focus on the things that they can control,” said Bankrate analyst Matthew Goldberg. “This means, making sure they're at an FDIC-insured bank and that their balances are within the FDIC's limits and that they're following the FDIC's coverage rules—so that their money is protected in the event of a bank failure,” he added.
How much does the FDIC insure?
As for whether you should move your money, the best advice for evaluating where you should store your savings are the same now as they’ve always been. “Sunday was the day you're supposed to change your clocks and check your smoke detectors to protect yourself and your home—so that you're prepared for an emergency,” said Goldberg. “Well, people need to use the recent bank failures as a reminder to check their FDIC deposit insurance coverage to make sure their money is at an FDIC-insured bank and that their balances are within FDIC limits and that they're following the FDIC's rules,” he added.
Goldberg emphasized that depositors should use tools made available by the FDIC. BankFind Suite, the electronic deposit insurance calculator (EDIE), and FDIC’s phone number (1-877-275-3342) are available for consumers, and you should use them to choose a financial institution to store your savings (whether imminent bank collapse is a concern or not). You can search your bank by name in FDIC’s BankFind Suite and use EDIE to confirm you’re within FDIC limits. You should also confirm that you have been following FDIC insurance rules.
Neuman explained that it is always a good idea to have multiple accounts at different banks, and especially if you have over $250,000 in cash. “The bigger money center banks like JPM and Citibank are going to be safer for larger deposits than the local bank down the street that may not be as much of a ‘Too Big To Fail’ bank,” he explained. However, keep in mind mid-size and smaller banks aren’t the only ones impacted by the market’s wariness of the health financial institutions. Charles Schwab plummeted 30% in the past five days, and Bank of America fell 14% in the past five days.
So while depositors shouldn't panic, stockholders may still be holding their breath this week.
