Considering all the things that can cause us to worry, we really don't need to add the safety of our bank accounts to the list -- but that is happening. People are worried about the stability of banks as a result of two recent bank failures.
Silicon Valley Bank in California and Signature Bank in New York were both shut down by state regulators within three days of each other, on March 10 (tinyurl.com/44d2pjw2) and March 12 (tinyurl.com/3byz2kf2), respectively.
Luckily, even uninsured deposits were saved. The March 12 joint statement released by Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell and FDIC Chairman Martin Gruenberg (tinyurl.com/3jtftv5b) made it clear that a "systemic risk exception" for the two banks would allow FDIC insurance coverage for even those accounts that exceeded $250,000, the FDIC insurable cap.
In a speech on March 14, Federal Reserve Gov. Michelle W. Bowman said, "One significant factor leading to the stress and subsequent closure at each institution was the rapid outflow of deposits, specifically uninsured deposits above the FDIC-guaranteed amount of $250,000 per depositor, per account type" (tinyurl.com/4sa87tx5). (The uninsured deposits at both banks totaled nearly 90% of all deposits, according to S&P Global Market Intelligence, tinyurl.com/nxvuft9z.)
In the meantime, Credit Suisse, a "too big to fail" global bank headquartered in Switzerland, captured headlines when its biggest shareholder, the Saudi National Bank, announced on March 15 that it would not put any more money into Credit Suisse (tinyurl.com/2x5sxsyk).
The question of contagion arose, of course, leading the Swiss Financial Market Supervisory Authority to state on March 15 that the problems of the two U.S. banks "do not pose a direct risk of contagion for the Swiss financial markets" (tinyurl.com/mthk967z).
A day later, Credit Suisse announced it was taking "decisive action to preemptively strengthen its liquidity" by intending to exercise its option to borrow up to $54 billion from the Swiss National Bank (tinyurl.com/njhrkk7x).
Then came First Republic Bank. On Thursday, March 16, 11 banks injected $30 billion into the San Francisco-based bank. A joint press release by the Treasury Department, Federal Reserve, FDIC and the Office of the Comptroller of the Currency reported, "This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system" (tinyurl.com/2p95pk6x).
What's next? We'll have to wait and see.
But, for now, regulators are staying positive. Federal Reserve Gov. Bowman, in her speech on March 14, said, "The U.S. banking system remains resilient and on a solid foundation, with strong capital and liquidity throughout the system." Then on March 16, Treasury Secretary Yellen told the U.S. Senate Committee on Finance "that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them" (tinyurl.com/h8bwhdd3).
Investment firms are addressing their client's uneasiness. Fidelity Investments, with more than 40 million client accounts, recently told clients:
"To help manage the anxiety and fear that may arise from watching the market react to events such as the failure of Silicon Valley Bank, it's helpful to have a long-term asset allocation plan as part of a broader financial plan" (tinyurl.com/2r7ya35x).
Agreed. Worry can extend beyond banks, and rightly so. Bank customers are at risk if they deposit more than FDIC insurance covers (see details of FDIC insurance at tinyurl.com/yj2z5zaw). Investments are housed with brokerage firms, not banks.
There is some bank exposure even within the brokerage environment, however. For example, if you purchased bank certificates of deposit (CDs) through your brokerage account, be sure to check your FDIC coverage. CDs are not securities covered by the Securities Investor Protection Corporation, which works to restore the cash and securities of investors when a brokerage firm fails.
When dealing with your overall financial picture, it is wise to consider risk -- always, not just when headlines flash potential trouble.
As Fidelity Investments points out, "An appropriate asset allocation includes a mix of stocks, bonds, and short-term securities or cash that aligns with your goals, time horizon, and your ability to manage risk."
So how do you manage risk?
Go behind the headlines. Understand your exposure. Follow what regulators are saying. And while doing so, expand the review to include all of your holdings and your overall financial situation. And don't hesitate to get help.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION