Some financial experts weighed in on whether Americans should feel worried about the safety of their money amid several bank collapses in recent days as some consumers expressed concerns about their deposits, their bank, and the American banking system.
Bank Runs?
Banks, which are for-profit entities, unlike credit unions, take customers’ deposits and invest that money elsewhere—meaning, if every single customer at a certain bank wished to withdraw all their money at the same time, it’s likely the bank wouldn’t have enough cash on hand to do so.Financial Crisis?
“This doesn’t seem like a financial crisis, yet,” Jude Boudreaux, a CFP and senior financial planner at The Planning Center in New Orleans, told CNBC. “The two banks we are talking about right now specialized in riskier assets,” he said, referring to SVB’s investments in tech companies and startups and Signature’s specialization in cryptocurrencies. “The likelihood that this becomes a national wave of bank issues seems low.”FDIC Insurance
In the case of SVB’s collapse last week, many customers attempted to withdraw their deposits out of concerns about the bank’s health. Reports indicate that upwards of 85 percent of the deposits were uninsured, meaning they surpassed the FDIC threshold of $250,000.Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Florida, however, said that customers who have less than $250,000 in any accounts shouldn’t worry. If they have more than $250,000 in a single bank, those people may want to communicate with a banker to split it into different accounts at different banks, she said.
$620 Billion
However, total unrealized losses in the U.S. system were estimated by the Federal Deposit Insurance Corp. most recently at $620 billion. Its chairman, Martin Gruenberg, confirmed that figure days before SVB’s collapse in a speech.“The current interest rate environment has had dramatic effects on the profitability and risk profile of banks’ funding and investment strategies,” he said, according to an FDIC transcript. “First, as a result of the higher interest rates, longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values. The result is that most banks have some amount of unrealized losses on securities. The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at yearend 2022. Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry.”
Some analysts noted that banks may see that they have less cash on hand than they thought because their securities are worth less.