As you know, the recent failure of Silicon Valley Bank and Signature Bank has rattled the markets. Silicon Valley Bank was heavily concentrated on technology start-ups and venture capital firms. Many of the bank’s clients had deposits above the standard $250,000 FDIC insured limit. As venture funding began slowing down last year, these clients needed to withdraw their cash to pay their bills. In turn, Silicon Valley Bank needed to sell investments at a significant loss (longer term bonds which had declined in value due to the Fed’s interest rate hikes) to meet the demand which caught them off guard. The bank then announced that they were raising capital to replenish their liquidity, which alarmed investors, who then began to withdraw their funds all at once.
The FDIC quickly stepped in and took over Silicon Valley Bank to stabilize the financial system and protect depositors. They put a plan in place to backstop the full amount of deposits including uninsured deposits over the regular $250,000 maximum. To maintain stability and public confidence in the banking system, the Federal Reserve, Treasury and FDIC launched a new program (the Bank Term Lending Program) to provide additional funding to banks to ensure that they have the capital to meet the needs of depositors.
The recent failure may lead to tighter banking regulation going forward. The Fed may also end up moving more slowly with future rate hikes and possibly end their rate hike cycle sooner than recently expected. This could be a potential positive for both stocks and bonds. While there could be additional banks with issues, the US banking system overall remains well capitalized.
We will continue to monitor the situation closely. It should be noted that Raymond James remains in a financially sound position and has among the strongest capital ratios in their industry with double the regulatory requirement considered to be well-capitalized. For more information on Raymond James and how they protect your account, click here.
Key Takeaways:
- Silicon Valley Bank was the second largest bank failure in US history.
- No depositors in FDIC insurance banks will lose any of their deposits, even those above the $250k threshold. The FDIC has guaranteed those deposits for now.
- Silicon Valley bank was too reliant on uninsured deposits and did not manage their own asset portfolio for the current rising rate market. Signature Bank catered to Crypto depositors. Both are outliers. However, it is important to understand the nature of your cash balances in any bank in terms of FDIC coverage.
- Raymond James bank is one of the most conservative banks in the industry. More than 90% of their deposits are at or below the $250k threshold, which is the opposite of where SVB was. To learn more, click here.
- In order to understand how to be sure your bank accounts are covered by FDIC, review the rules here.
- Markets remain unsettled, but this does not alter our overall strategy of diversification or process of aligning to your financial plan. If you have any questions, please contact us.
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