More people are wondering just how safe their money is in a bank after the collapse of Silicon Valley Bank and Signature Bank.
Online searches asking that question have jumped as Americans worry their bank could be the next to fail.
That fear hasn't subsided even after major U.S. banks injected more than $30 billion of deposits in First Republic Bank last week and UBS bought Swiss banking giant Credit Suisse over the weekend.
Experts say there’s no reason customers should worry about money kept in banks that are covered by the Federal Deposit Insurance Corporation, especially since very few depositors surpass the $250,000 limit on the insurance.
And with Signature and SVB, the government took extraordinary steps to insure deposits above that limit.
Clark Kendall, president and CEO of Kendall Capital, a wealth management firm, said the government's actions set a precedent for any other bank failures. "The FDIC will now step up and ensure all depositors," he thinks.
The bank’s customers – mostly startups and other tech companies – were in need of cash after venture capital funding started to decline. Those customers began withdrawing their SVB deposits to pay their expenses.
SVB didn't anticipate so many withdrawals at the same time. And when that occurred, the bank was ill-prepared with minimal deposits on hand and most of its money tied up in U.S. Treasuries.
A customer stands outside of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023, in Santa Clara, Calif.
SVB had to start selling those bonds at a loss to meet withdrawal requests, but it wasn’t enough.
Last week, the bank said that it suffered a $1.8 billion after-tax loss and would sell $2.25 billion in new shares, which spooked investors. The bank's stock plummeted and depositors moved to take out more money than the bank could provide. Two days later, regulators seized the bank’s assets.
A week after the FDIC took over SVB, its parent company filed for Chapter 11 bankruptcy.
How is this different from 2008 bank collapses?
While SVB's meltdown and the stress rippling through the banking system may stir memories of the 2008 financial crisis, it has little in common with the earlier episode.
The 2008 crisis enveloped the entire housing market, threatened the survival of the nation’s biggest banks, and threw the economy into its worst downturn since the Great Depression.
In the early 2000s, banks approved subprime mortgages for unqualified borrowers who couldn’t refinance or repay the loans when the housing bubble burst. As house prices fell further, the pain quickly spread to more traditional borrowers who defaulted on their mortgages and to banks that had bundled the mortgages into securities and sold them to other investment firms.
With the value of those securities plunging, banks virtually halted lending, millions of Americans lost their homes to foreclosure, nearly 9 million workers lost their jobs and nearly $20 trillion in household wealth was wiped out.
The current crisis began with a single regional bank that disproportionately served tech companies.
A man walks out of a Manhattan branch of Signature Bank which was closed by bank regulators on Sunday on March 13, 2023 in New York City. The move by the state's Department of Financial Services seeks to prevent a banking crisis spurred by the failure of Silicon Valley Bank.
A second bank, Signature Bank, also had to shut down and the stress spread to other regional banks with concentrated portfolios. But it generally has not imperiled larger, more diversified banks, said Gregory Daco, chief economist of EY-Parthenon.
And while SVB had to cope with “interest rate risk,” which ultimately led to its demise, banks in 2008 faced “credit risk” – the more serious hazard of loan defaults, Daco said.
Another key difference is commercial banks have a far bigger capital cushion to withstand losses today, with cash comprising 14% of their assets, compared with 3% at the start of the financial crisis, said Jeffrey Roach, chief economist of LPL Financial.
The values of those assets, largely Treasury bonds, are known. That is unlike the underlying value of mortgage securities in 2008, Daco said.
And this time, regulators moved within two days to guarantee that deposit holders at SVB, Signature, and other banks could access all their money, Daco said. In 2008, it took federal agencies months after the failure of Bear Stearns and IndyMac Bank to set up their most sweeping rescue programs.
Hundreds of banks failed in the 2008 crisis, versus two so far in the SVB episode. And the current crisis will cause banks to pull back on lending but not nearly as much as in 2008, economists say.
“Unlike in 2008, the government is getting ahead of the problem rather than trying to clean up afterward,” says Brad McMillan, chief investment officer of Commonwealth Financial Network. “We are not set for a rerun of the Great Financial Crisis.”
The $250,000 limit is per depositor, per insured bank for each account ownership category, with the exception of some accounts including, investment accounts, life insurance policies, and safe deposit boxes or their contents.
Here are some of the types of accounts the FDIC does insure:
Checking accounts
Savings accounts
Negotiable order of withdrawal (NOW) accounts
Money market deposit accounts (MMDA)
Certificates of deposits (CDs) and other time deposits
Cashier’s checks, money orders, and other official items issued by banks
Deposits above $250,000 may be protected as well.
Should you pull money out of the bank?
“Every American should know that their accounts are safe and their deposits are protected," said Jeff Sigmund, a spokesperson for the American Bankers Association. "Our industry will work with the administration, regulators, and Congress to further bolster that trust,” Sigmund said.
The National Bankers Association, which promotes minority-owned financial institutions, issued a statement Monday to assure customers that their deposits are safe at banks.
“Minority depository institutions are very different from both SVB and Signature Bank which had high concentrations in crypto deposits and volatile venture capital,” President and CEO Nicole Elam said in a release. “Minority banks are not exposed to riskier asset classes and have the capital and strong liquidity to best serve consumers and small businesses.”
David Sacco, an instructor in finance and economics at the University of New Haven's Pompea College of Business and a former fixed-income trader, said most banks are "in better shape than they've been in in a long time."
“Anything could happen. But I am significantly less worried that this is going to spread in terms of bigger banks having the same problem," he said.
The Office of the Comptroller of the Currency, an independent bureau of the U.S. Treasury Department that supervises national banks, said it has heightened monitoring and is coordinating with other U.S. regulatory agencies to make sure the federal banking system retains the trust of consumers, businesses and communities.
“The OCC remains committed to ensuring that national banks remain safe and sound, provide fair access to financial services, and treat customers fairly,” a statement from the bureau said.
Security guards let individuals enter the Silicon Valley Bank's headquarters in Santa Clara, Calif., on March 13, 2023. The Federal Deposit Insurance Corporation has taken over the bank after failed attempts to sell it to healthier banks.
Which banks are safe from collapse?
The Financial Stability Board, an international organization that was created after the 2008 crisis, maintains a list of banks that are colloquially considered "too big to fail."
In addition, the U.S. created a Financial Stability Oversight Council after the crisis to determine which banks are systemically important to the banking stability in the country. The Counciland FSB place unique restrictions on these banks, for instance, how much of depositors' money they can lend out and how much cash they need to have on hand.
The restrictions are designed to add an extra layer of protection beyond what the banks would do if left to their own devices, according to the architects of the post-2008 regulations. That's not to say that these banks can't run into trouble but it's safe to say the government wouldn't allow them to collapse because it would pose so much danger to the overall financial stability of the country.
On the top of the list is JPMorgan, the nation's biggest bank. It didn't respond to USA TODAY's requests for comment regarding if its customers' deposits are safe with them. Citibank, the nation's third-largest bank, declined to comment.
Charles Schwab also declined to comment but pointed to a Monday report that noted more than 80% of its total bank deposits fall within FDIC insurance limits. In comparison, 6% of total domestic deposits were insured at Silicon Valley Bank, according to S&P Global.
Ally Bank told USA TODAY that "nearly 90% of our customer deposits are fully insured (by the FDIC)."
PNC Bank said its "strong capital and liquidity levels position us well to continue supporting our customers regardless of the economic environment."
Wells Fargo declined to comment. First Republic Bank, Capital One, and Bank of America didn't respond to requests for comment.
What happened to Credit Suisse?
Credit Suisse, a global bank based in Switzerland, had been under stress before the Silicon Valley Bank collapse. SVB's collapse amplified the troubles Credit Suisse was facing as its stock plunged.
Credit Suisse desperately needed more cash to alleviate customers' anxieties. So the Swiss central bank provided a lifeline of around $54 billion Thursday morning.
Then over the weekend Credit Suisse's rival, UBS, agreed to buy it for $3.2 billion in an effort to restore banking stability.
How to protect your money
You can do a number of things to ensure all of your money is safe in the unlikely event that your bank collapses.
You can open multiple accounts at different banks, the FDIC says.. You can also open a joint checking account which would insure up to a total of $500,000 in the account ($250,000 per person).
“No one needs to worry about losing their deposits as long as they're in a bank that's got that FDIC symbol somewhere on their logo,” Sacco said. “You definitely don't have to panic."
