If you were paying attention to the news at all last week, you probably heard a lot about Silicon Valley Bank (SVB) and the troubles it faced.
After the U.S. government took over the bank on Friday, you might have started wondering how safe your local bank is.
After the U.S. government took over the bank on Friday, you might have started wondering how safe your local bank is.
The answer? Pretty safe.
Financial industry experts point out that SVB had several extenuating circumstances working against it. Many of the bank’s customers were technology startups that depend on loans to fund their growth. As interest rates have moved higher, many of those customers withdrew deposits to meet higher expenses.
At the same time, SVB had invested much of those deposits in government bonds when the yield was less than 1%. Now that the yields are closing in on 5%, the value of those bonds is much less. When SVB sold the bonds to raise money, it lost an estimated $1.8 billion.
What FDIC insures
If you have your money in a bank it is insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). That amount was raised from $100,000 at the start of the pandemic in 2020. Should the bank fail – as hundreds did during the 2008-09 financial crisis, FDIC would restore depositors’ money.
While all banks may be feeling pressure from rising interest rates, many industry analysts say the U.S. banking system is more solid than it was in 2008. In an interview with Fortune magazine, William Chittenden, associate professor of finance at Texas State University, said there is little risk that what happened to SVB will happen to your bank.
“Having said that, SVB’s collapse does highlight the risk that many banks have in their investment portfolios,” Chittenden said. “If interest rates continue to rise, and the Federal Reserve has indicated that they will, the value of the investment portfolios of banks across the U.S. will continue to go down.”
President Biden issued a statement saying Americans should “rest assured” that regulators are closely monitoring the financial services industry and that everything is under control reports Consumer Affiars.
“Americans can have confidence that the banking system is safe,” Biden said. “Your deposits will be there when you need them.”
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