Update: The Treasury, Federal Reserve, and FDIC put out a joint statement that New York’s Signature Bank has been taken over by US regulators. They also announced that the US government will backstop all deposits made at Silicon Valley and Signature Bank and all funds will be available tomorrow, including funds not covered by FDIC insurance.
“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.
The joint statement also states that no losses will be borne by the taxpayer.
“Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
In a separate statement, the Federal Reserve Board announced that it will make additionals funding available to other banks so that they will have the liquidity needed to meet the needs of depositors.
Depositors rushed to withdraw funds from Silicon Valley Bank last week, which helped cause the 2nd biggest US bank failure in history.
High treasury yields have hurt banks and the stock market as people are investing in those guaranteed returns. With T-bill safe returns as high as 5%, money is flowing out of banks and into those sure bets. It’s a problem keeping every bank executive awake at night.
Silicon Valley Bank had to liquidate old low yielding bonds at a big loss to cover funds being withdrawn and the federal reserve had to step in and take over operations due to the run on the bank. There were ways for them to hedge against high interest rates, but they failed to do so, causing their current unsustainable losses.
But what struck me was that more than 93% of the banks $161 billion in deposits were not covered by FDIC insurance.
Those depositors will still be able to collect from the bank’s assets, but are subject to a loss of some of their funds, barring a government bailout for depositors.
The FDIC covers $250,000 per depositor per ownership category type per bank. That means an individual or business account with one owner has $250,000 insured, while a joint account with 2 owners has another $500,000 insured.
A married couple can have $1,500,000 in FDIC insurance if they have a joint account, each have a solo account with no beneficiaries, and each have a solo account naming each other as a beneficiary.
If you open additional accounts at the same bank, you don’t get more than $250,000 of coverage per depositor, but if you open accounts at different banks you would get additional coverage at each bank.
Another option to add coverage is by adding more payable on death beneficiaries to your account. This is an informal revocable trust where you designate a person to receive funds after the death of the account owner and they can be removed at any time. You’ll receive $250,000 in coverage for each beneficiary listed on your account.
A beneficiary can be a living person or non-profit organization.
While your beneficiary can only have $250,000 of coverage per bank per depositor, you can get additional coverage if you add a beneficiary on a joint account as well as on an individual account, as the beneficiary would contribute $250,000 of coverage on your individual account and another $250,000 of coverage on your joint account.
Sure, this only applies to higher net worth individuals that maintain liquid funds, but there’s no reason to contribute to a run on a bank if you’re backed by FDIC coverage.
Read more about FDIC coverage and examples here.
You can use the FDIC coverage calculator here to see if your deposits are fully insured under various scenarios of individual and joint accounts.
Do you think we’ll see more banks failing over the coming weeks?
Will the government step in to insure all deposits?
Are we in for a 2008 level recession, but without the ability to recover by dropping interest rates near zero as the federal reserve did then, due to the current high inflation?
Or will a stronger economy mean that we can avoid bank failures and a harsh recession?
There are lots of questions, but few good answers at this point.
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117 Comments On "[Signature Bank Fails, All Depositors Will Be Bailed Out] More Than 93% Of Silicon Valley Bank’s Deposits Didn’t Have FDIC Coverage, Don’t Forget To Make Sure Your Funds Are Insured"
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No one has ever lost bank deposit funds since FDIC was established, regardless of the $250k limit. This is stated even on the FDIC website. Good practice to have multiple accounts, but no reason to fear.
Past performance does not guarantee future results.
Play the game smart and you won’t get burned. No reason not to take advantage of free insurance.
Nobody has lost deposits? I suggest you research what happened in 2008. I lost deposited money in 2008.
Congratulations to everyone who voted for democrats. We knew this was bound to happen. It’s down spiral from here.
One of the primary drivers of this bank’s issues is that they had an influx of money during the pandemic and bought low-interest long-dated bonds with that money. A lot of this money came from the Fed’s irresponsible zero-interest monetary policies fostered by Trump and PPP loans given to any business, again authorized by Trump. Not saying democrats have no fault here, but this issue isn’t as simple as “republican vs democrat.”
Yes. We should blame who overturned some parts of dodd frank regulations .
Oh sorry, that was Trump
The Economic Growth, Regulatory Relief and Consumer Protection Act which overturned parts of Dodd-Frank passed with a bipartisan supermajority. Trumps signature wasn’t even needed. It’s kinda hard to claim that this is the last administration’s fault 2 elections later though I’m sure you guys will do that anyways considering how much you love the Democratic party and will continue to willfully turn a blind eye to their inflationary policies which are leading us into this recession.
Instead of being an idiot, stick to facts.
The vast majority of House Democrats voted against that act. Nearly all House Republicans voted in favor of the act.
Barney Frank himself is one of Signature Bank’s board of directors, one of the failed banks. Was he paying attention to his fiduciary responsibility or just hanging around cashing a check?
(Refuah Sheleimah for the case of Trump derangement syndrome)
This is a ridiculous comment – both of the largest bank meltdowns happened because of policies enacted during republican presidencies. SVB has mostly commercial clients and they didn’t hedge appropriately. Nothing to do with the political leaning of the current president.
Instead of being an idiot, stick to facts.
IT happened, because of inflation and forced rapid interest rate increases. Hence, yes, Biden is mostly to blame for what happened.
Do remember that Biden and Democrats had full control of government for two-years. IF they thought there was a problem, they should have done something. Of course, the legislation you reference was supported by both democrats and republicans and was not the cause of this disaster.
The 2018 Trump pushed law to undo parts of Dodd-Frank are what redefined and allowed for non-SIFIs to play a more risky game than that allowed to Citi and Chase.
“ But what struck me was that more than 93% of the banks $161 billion in deposits were not covered by FDIC insurance.” because those were business depositors! $250k is not an amt that is relevant to a company that is depositing millions/billions n such banks. no CFO of such a company is parking $250k n umpteen banks!
No, decades ago you never got fired for buying IBM equipment. Today you don’t get fired for keeping deposits at a too big to fail bank.
Still don’t understand how banks can be losing money
2nd and 3rd paragraph of this post.
The far majority of depositors were commercial and it’s much harder for them to get FDIC insurance on all their funds than it is for individuals
I understand, though there are still ways to mitigate potential losses.
Either way, the point of this post is for what individuals should be doing now.
The US dollar will soon be worthless. FDIC insurance can’t save the dollar from what’s coming.
So what’s the aitza? Cryptocurrency? Cash under the mattress?
Despite my distaste for Citi, they are SIFI and thus the safer way to play this.
You and any rich person can purchase treasury bills and notes to protect them selves. Interest rates are competitive now and the current technology it is easy to transfer.
Ps treasuries aren’t FDIC insured. As it can print money.
Gov allows treasuries the be redeemed at par, saves everyone and doesn’t cost as far as I understand. Next force banks to mark to market assets daily so everyone knows what in there.
Also perhaps a private insurance umbrella with standards that banks need to adhere to participate.
Sales of SVB supposed to be happening as we speak, if something isn’t announced before open tomorrow securing every deposit to 100 % at every bank there will be blood on Wall Street and soon Main Street
Since you were talking about banking people should be aware that checks are now being stolen from mailboxes and white washed with a different amount different date and a different person. They steal them even from the mailboxes in front of the post office. I am one of four people in my immediate community who had that happen $1000 check was changed to $9000 and I have to wait a minimum of 180 Business days to recoup it. If you send a check use a gel pen only that cannot be whitewashed
Thanks for raising awareness. In which community is this happening?
All, as per my conversation with postal inspectors. I noticed loads of glue on post office located mailboxes on Ave U in Brooklyn, 11229.
They do not open the envelopes carefully. They rip through them. I was told by my bank to file a police report. When I did the officer told me about the “ripping through mail” – no time to waste
I live in Chicago – West Rogers Park neighborhood – after it happened in my branch I decided to see if the problem exists with other local banks and they said “YES” The “gel pen” was from the news and they also said to mail checks only inside of a post office. It is happening everywhere
Same story in Boston 2 days ago. $360 check to a utility in the mail was changed to $18,360!!! Please don’t mail checks!
What’s the common denominator bet. all of these cities? DemonicRAT controlled.
The reason so many of the accounts were above the threshold here is because they were getting good loans from SVB for startup businesses. They couldn’t take the loaned money and park it in a different bank.
I do think some more banks are going to stumble because of this.
To your comment about about lowering rates: rates have to be non zero in order to be lowered. The recent raising of rates is an attempt to restore that cushion in the event it becomes necessary to lower it again. It should have been started years ago under the previous administration and been long completed by now.
I love ignorance.
Fed is essentially an impartial entity. Republicans/Democrats have no direct control over it.
Dan you can explain why in the world anyone would have bought longer term maturing t notes when rates were close to 0 ? I understand higher risk investing (even-though banks should have serious risk management) but I just don’t get how this made sense even at the time…
Not many people predicted in 2021 how long zero interest will last. Hindsight is 2020
Anything more than 0 is better than 0. It just should have been hedged against rising inflation!
At the time these low-interest, long-dated bonds were purchased, they were a good, safe investment. In fact, they are still good and the bank will EVENTUALLY get all their money back, plus interest, but only after the bonds mature at 10 years. If everyone kept their money in SVB, there wouldn’t be any issue. Now that there is a bank run, they can’t sell these bonds to recoup everyone’s deposits because no one will buy these older bonds when you can get new bonds with 5% return. The problem was the quick interest rate increase by the Fed and irresponsibly by the bank’s management – they should have rebalanced their investments to protect themselves, but they didn’t.
Would something like that happen with chase; Chas V’Shalom, would all Chase Ultimate Reward points be lost?
Chase V’Shalom 😉
But Chase is definitely in the category of too big to fail.
The government wouldn’t allow it to happen as it would instantly crash the world economy.
Not trying to hype but if they don’t do something to stem the flow by the time it gets to chase they might not have many options. Unlikely to happen though
Which other banks would you say are too big too fail?
Probably Chase, BoA, Citi, Wells Fargo, Goldman Sachs, Morgan Stanley.
The 4 Biggies: JP Morgan Chase, Citi Bank, Bank of America, and Wells Fargo.
Where do huge brokerage firms like Northwestern Mutual fall into this whole puzzle?
See what Charles Schwab had to put out to the press. Broker-dealers have some of these same issues.
SIFI was initially classed as low as at 50 billion dollars in assets. But at 250 billion, the USG will do whatever it takes to keep the bank from going down.
What about Td?
As they’re a Torontonian/Canadian bank.
Ranks 10th largest in US. Behind PNC, and a few others that many people never heard of. The 4 largest banks, JPMC, Citi, BofA, and WF, account for a tremendous portion of US bank assets.
Chase will fail. I just pray Israel’s banks don’t. I truly believe Hashem wants us all home finally.
Chase is one of those banks that’s ‘too big to fail’. They would get a bailout.
And we get hyperinflation
Sheesh! The biggest concern is Chase Ultimate Reward points!
You need to have cashflow to fulfill all those expense requirements….
Dan: Do we need another note about not spending for other people?….
Can someone explain the issue. From the articles I read it seems the bank’s assets are significantly higher than deposits. Doesn’t that mean that if they liquidate all deposits would be covered?
You lose money selling off assets, as they discovered when liquidating their low yielding bonds at big losses. Even more so when there’s a fire sale.
Time = money. This assets are only worth their value at maturity (and if the fed doesn’t go bankrupt)
Does this work for SPIC insurance for brokerage accounts too? Would adding a beneficiary give someone $1 million of coverage above the standard $500k?
Also feel the need to clarify that bailouts being discussed are for depositors, shareholders will be completely wiped out.
A sale could be different
Interested to hear reactions to today’s Jewish Press article on this topic. Looks like the Bar Kamtzas who tried to cause a bank run in Israel took a bath. VeNahafoch hu?
https://www.jewishpress.com/news/politics/israel-supporting-hi-techs-that-lost-billions-in-judicial-reform-protest/2023/03/12/
That is a very good article
How does noone see that this is all just a preview of what’s coming? Prophecy unfolding before our eyes.
@Dan It’s $250 per “ownership category type” even multiple category types at the same bank. But I’m sure you wrote what you wrote for simplicity sake.
@dan That was a fast fix!
“The FDIC covers $250,000 per depositor per bank. That means an individual or business account with one owner has $250,000 insured, while a joint account with 2 owners has $500,000 insured. If you open additional accounts at the same bank, you don’t get more than $250,000 of coverage per depositor, but if you open accounts at different banks you would get additional coverage at each bank.”
To clarify the coverage limits a bit, if you are married (and trust your wife), it’s possible to get up to $1 million of FDIC insurance coverage per institution. Each of you can have an individual account with $250k of coverage for each account, and IN ADDITION together you can open a Joint account which will be covered for $500k.
You can then replicate this at as many banks as you want to get up to $1 million in coverage per bank.
Very Important: FDIC does NOT PAY interest on your funds, starting when the day they take over. They will only insure the balance in the account starting on Failure Day. So chasing high interest at risky banks may seem like a good idea, but you will earn ZERO INTEREST while your funds sit there for months waiting for the FDIC to pay you out.
Erm.
The FDIC has said that SVB insured deposits will be available Monday. It’s the non-insured deposits that will take time to sort through.
All the more reason to ensure your deposits are insured.
Interest will not be earned starting Monday.
If it’s available Monday, why can’t you pull it out and put it somewhere else to earn interest?
The vast majority of SVB deposits were not FDIC insured. Largely due to its customer mix.
Are all of these FDIC rules the same if you have over $250k in a Credit Union ? Are they generally safer, riskier, or comparable ?
Credit unions are insured by the NCUA and have their own system.
My guess? A slowdown, no major recession. No more major banks failing (maybe small ones will). I predict interest to continue to climb. Housing to go down a bit and then rebound. My guess is as good as the “experts”. As Mark Hanna said in Wolf of Wall Street. Number one rule of Wall Street. Nobody – and I don’t care if you’re Warren Buffet or if you’re Jimmy Buffet – nobody knows if a stock is going to go up, down, sideways or in circles.
One person knows. Donald Trump. And he said it. Worse than the Great Depression. And permanent.
For businesses with large accounts – there is a product many banks offer called ICS – Insured cash sweep.
Basically, you deposit at a participating bank of choice, and then the bank places your money at a variety of network banks in 250k increments. You still bank with your primary institution as normal, as they act as the custodian, but the balance remains fully insured.
Of course the trade off for this is a combination of higher fees and lower yields.
But yes, for a company going though millions or more a month to pay vendors and payroll and collect receivables, it’s not possible to maintain such low balances as a single payroll alone is >250k.
“Chase V’Shalom
But Chase is definitely in the category of too big to fail.
The government wouldn’t allow it to happen as it would instantly crash the world economy.”
If JP Morgan ever needs a bailout the government couldn’t stop the rollercoaster by that time.
You can always get insurance to cover the over 250k
Please explain
For people liquid in the (tens of) millions, there are methods to have linked accounts so that your cash is technically spread out across dozens of institutions (though easily linked to one for ease of use). At that point, you’ll also likely consider T-bills and the like.
In any case, I’m wondering the order of operations for all cash the bank now receives. Pro rata?
Simple answer is just don’t keep money in banks keep it in big brokerage houses with trillions in assets on deposit.
Apparently you forgot about Lehman Brothers.
They had over $600 billion in deposits.
I’m probably in the minority and am kind of thankful that this is one thing that doesn’t keep me up at night. Otherwise the local mosdos would probably be asking for bigger checks.
Does the information of the current economy and Fed action point to this happening to more and bigger banks too?
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm
Let’s be honest. No one posting on Dandeals is an expert on the banking industry. We all have a limited understanding of how this stuff works which makes it even scarier since it’s an unknown.
There is no free lunch, and there is no free money. US government played that game for a long time, piling up debt starting with Ronald Reagan. The game has a simple cost, as debt piles up inflation is ignited. As government then begins to fight inflation all the institutions/people playing the leverage game get burned. The choice becomes a deep depression or hyperinflation; there is no escape, it’s called the LAWS of math for a reason.
Now Signature is closed as well
https://home.treasury.gov/news/press-releases/jy1337
With SVB and now Signature shutdown, is First Republic next? I bet First Repub will se a “run” on deposits as they open for business on Monday. Good bank nonetheless.
MUSHU
https://www.zerohedge.com/markets/svb-latest-developments-live-blog-fdic-auction-failed-svb-assets-underway “*US TREASURY OFFICIAL SAYS ‘THERE ARE CONCERNS ABOUT DEPOSITORS’ *DIF HAS MORE THAN ENOUGH TO COVER ALL SVB, SIGNATURE DEPOSITS
Does DIF have enough funds to cover all small and regional banks? No? Ok then..”
Also this gem; “US TREASURY OFFICIAL SAYS THIS SITUATION `IS NOT 2008” #oyvey
a lot of frum ppl just lost their jobs 🙁
https://www.linkedin.com/posts/dkoegel_there-is-clearly-more-going-on-behind-the-activity-7040816739269386240-hKVh?utm_source=share&utm_medium=member_desktop
What makes you think that?
I know
At signature? Or secondary effects?
At Sig. but will be felt around..
Did signature bank actually fail or was this a preempted attempt from the feds?
In bothe cases it was State regulators flexing their muscle https://www.cnbc.com/2023/03/12/regulators-close-new-yorks-signature-bank-citing-systemic-risk.html
The feds shut it down on their own citing systemic risk.
In NY the state stuck their nose in first. Judging the size of Hochul’s nose, it’s hard to blame her.
This is just the beginning. All US banks will soon fail. Yidden are coming home! Mass Kibbutz Galuyot. Biggest black swan of world history.
How about Bank Leumi? Is that a Galus bank or from the Geulah times?
Bank Leumi sold off their USA subsidiary last year to Valley Bank, where they remain the largest institutional shareholder.
From what I understand, the Shekel will emerge stronger when the US dollar fails.
Yeh yeh. They said that during the lockdowns of covid. Yawn.
so can i still deposit signature checks ?
What about ally and CIT bank? The ones advertised here for their high interest savings or CD accounts?
Every bank without exception can fail quickly. It’s because they simply use deposits to invest or lend and that means those funds are not readily available.
If there’s a “run on the bank” which means a large amount of folks rapidly withdrawing funds, the fact is the bank simply doesn’t have it.
So like with Silicon Valley bank, they are forced to sell their various positions at losses to accommodate the withdrawals and even doing so they can’t keep up with the run aka withdrawals out.
while a joint account with 2 owners has “another” $500,000 insured.
It’s not “another” it’s has $500,000 insured.
Another $500,000 on top of the $250,000 provided for individual account owners.
Wasn’t Signature Bank geared toward the Brooklyn business owner does well like this site’s owner? Or was that First Republic?
First Republic is down to a P/E of under 3. So much for the bank term lending facility backstop stopping that slide from happening.
Erm, this site is based in Cleveland, Ohio.
Dan dont you know that we disregard anybody outside NY/NJ:)
can somebody post an article that in simple terms lays out exactly why and how this bank spiraled out of control
This is a very oversimplified and rounded/assumed explanation, but the basics are all there and hopefully simple enough to understand.
Before 2022/2023:
1) People/companies deposited $209B (Billion!) dollars with Silicon Valley Bank (“SVB”). (Making it the 16th largest bank in the US by assets.)
2) SVB paid its depositors basically nothing in interest because the market rates were at 0%.
3) SVB used most of that $209B to buy low-yield (1-2%) long-term (30 year) Treasury bonds.
4) SVB kept a chunk of its deposits in cash for operations. Let’s say $9B.
5) SVB made a profit of $4B (per year) on the difference between what they paid out to their depositors ($0!) and what they made in interest on the bonds ($200B * 2% = $4B).
So far, so good. Everyone is happy. SVB is making good money. Then 2022/2023 hits and:
6) The Federal Reserve starts to raise interest rates (very quickly) to fight inflation.
7) As interest rates went up, the value of the Treasury bonds that SVB owned went down. (Why should I pay $100 for a bond that yields 1% when I can buy a new bond for $100 that yields 5%?)
This would not be a problem, as at the end of the day (in 30 years) the Treasury bonds will eventually pay their face value of $200B and SVB has tons of cash to operate normally (remember that $9B), except:
8) Tech stocks start to take a hit.
9) Tech workers start to get laid off en mass.
10) SVB has a larger-than-normal exposure to tech companies and tech workers. (Remember, this is Silicon Valley Bank!)
11) Tech companies (the medium and smaller guys, not the Apples and Microsofts) and tech workers start to pull more money than normal out of SVB accounts to pay their bills.
12) Because too much cash is being pulled out, SVB starts to run low on cash.
13) SVB has to sell some of its Treasury bonds at a loss. (See Step 7. They lost $1.8B on $21B of bonds. Ouch.)
14) People hear that SVB just lost a lot of money on their Treasury bond holdings, and get nervous.
15) People rush to pull their money out of SVB because they are afraid that it might collapse and they will lose their deposits. No one wants to be the guy left holding the bag.
16) Repeat steps 12-15 a few times over the course of hours(!)/days.
17) SVB loses so much money on the Treasury bonds it sold that it no longer has enough assets to cover all of its liabilities. (Money people deposited with the bank.)
18) Repeat something similar at Signature (assumedly, but I have not looked into it).
19) The Fed steps in and promises to make all the depositors at both banks whole so that people don’t start doing the same thing at other smaller (read: not the big 4) banks.
20) JPMorgan Chase makes off like a bandit with tons of new money deposited because they are seen as the safest bank around.
It’s a classic bank run. They are very often self-fulfilling prophesies. People are afraid that the bank will fail, so they pull their money from the bank, which causes the bank to fail. If everyone had left their money in the bank, the bank would have been fine.
For further reading, cf. https://en.wikipedia.org/wiki/Bank_run or https://en.wikipedia.org/wiki/Panic_of_1907 – 116 years ago when JP Morgan also made off like a bandit because of a bank run.
great summary thanks!
how do long term treasury bonds work why would they ever actually lose value?
If rates go up then a 2% bond is worth less then par. If they hold it to maturity they won’t loose money. If they have a liquidity crunch the market will only buy the treasury bonds a discount to make up for the low interest rate.
For those with Signature accounts, what should we do? Cash out? Hang tight? Will deposits still work? Will our checks still work? Will the bank return to normal under state and fed rule? Or do we need to find another bank quickly?
The British treasury has approved the takeover of SVB UK to HSBC, saving many British tech startups!
Welcome to the age of unlimited deposit insurance. That action by the FDIC is setting up a pretty interesting precedent.