From saving for your children's college education to buying a home, you trust banks to safeguard your money and make it available when you need it. However, the recent collapse of Silicon Valley Bank (SVB), followed two days later by the failure of Signature Bank, may have you worried and wondering how safe your money is in a bank. Read on as we answer your question and provide tips on protecting your money from a bank failure.
What is a bank failure?
When a federal or state regulator closes an insolvent bank, it is known as a bank failure. Banks are usually closed due to their inability to meet their financial obligations to depositors and other creditors. When this occurs, the Federal Deposit Insurance Corporation (FDIC) takes control of the failing bank and reimburses insured depositors up to a specific limit.
What causes bank failures?
A bank can collapse if it has too many bad loans, leading to a loss of capital. Bank failures also occur when banks engage in high-risk investments that fail. One of the common reasons why banks fail is when liabilities exceed assets, resulting in an inability to meet obligations.
What led to the collapse of SVB?
The collapse of SVB began when the Federal Reserve raised interest rates, resulting in the fall of their bonds and treasury value. Many SVB customers then began withdrawing their money, forcing the bank to raise new capital at a loss by selling new shares. This chain of events spooked many depositors to withdraw more money than the bank could provide.
Is my money safe in a bank?
If your bank is insured by the FDIC, or in the case of a credit union, by the National Credit Union Share Insurance Fund (NCUSIF), you'll get all your money back if you have less than $250,000. If you have more than that, the amount over the $250,000 limit is not insured. That's why it is recommended that you spread your money across multiple banks. You can also file a receiver's claim to get your money back if your funds exceed the FDIC insurance threshold, but there's no guarantee.
What should I do if my bank fails?
If your bank fails, you can keep using your account as if nothing happened while the FDIC arranges for a healthier bank to purchase its assets. If no bank is willing to acquire its assets, you will receive a check for the amount of insured deposits. If your deposits exceed the $250,000 insurance limit, you can file a claim for reimbursement. As the bank's assets are liquidated, and funds become available, you may get some or all of your money back.
Take steps to protect your money from a bank failure
Although bank failures are rare, they could still happen. The best way to protect your money is to avoid the problem in the first place, and that means banking only with institutions insured by the FDIC.
For more tips on how best to protect your money, reach out to us at Lang Faylor Chomo. Our experts can create a personalized plan to safeguard your wealth and ensure a bright financial future.