What To Do About the Current Bank Scare

We wanted to share a few thoughts on the bank scare that started with the insolvency of Silicon Valley Bank (SVB) on March 10, 2023. For anyone who had large deposits at SVB, the good news is that regulators came up with a plan to make all depositors whole, including “uninsured” deposits that exceeded the FDIC insurance limits. Unsecured creditors of the bank may have some losses as part of the plan but depositors will be protected. Interestingly, as has been pointed out by the Financial Times and others, SVB had almost enough assets to cover all its deposit obligations, so it wasn’t such a stretch to develop this plan.

Shares of other regional banks have been hit hard as well, including First Republic Bank where many of us do our banking. The selloff in the financial sector of the stock market has even extended to non-bank financial institutions like Charles Schwab.

So, what to do?

If you have bank deposits in excess of the FDIC insurance limits, especially if it’s in a smaller regional bank, we think you should open accounts at other banks and distribute your funds so they all fall within the FDIC limits. Those limits are $250,000 per individual. If you have a joint account with your spouse, you both get full protection, which means the joint account is insured up to $500,000.

As for the volatility with Schwab’s share price, we don’t think that’s any cause for concern. The entire financial services sector of the market is getting a bit of a pounding but Schwab remains one of the strongest financial institutions in that sector and we have absolute faith in them as a sound custodian.

Give us a call if you have balances in excess of FDIC limits at any of your banks and would like advice on how to diversify them, or if you have any other questions about the bank scare.