Following recent developments over the last few days, we have put together a short market update on the US banking system, including the collapse of Silicon Valley Bank and what measures are being taken to ensure the banking system remains resilient and on a solid foundation.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the US Congress to maintain stability & public confidence in the nation’s financial system. One of the principal safeguards FDIC provides is insurance covering all types of deposits, but not investments, received at an insured bank, including checking/savings accounts, money market accounts, certificates of deposit, etc. The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
The collapse of SVB
Silicon Valley Bank (SVB), a lender to some of the largest names in technology, was shut down by US regulators on Friday, March 10th. SVB’s failure resulted from poor asset-liability risk management, no client concentration management, and no interest rate risk management. As an example, a material amount of client deposits had been invested by SVB in long-term US government bonds, which crystallised market losses when clients withdrew their deposits. As customers began panicking last week, this resulted in a liquidity crunch for SVB. Two days later, another bank, Signature Bank, was also abruptly shut down by regulators seeking to prevent a crisis in the banking system.
On Sunday, March 12th, the US Treasury, as recommended by the FDIC, Federal Reserve, & US President, decided to fully protect all depositors of both banks. Depositors of both Silicon Valley Bank and Signature Bank had access to all their money starting Monday, March 13th. This includes depositors with uninsured amounts beyond US$250,000, making a systemic risk exception. The announcement stated that no losses are to be borne by the US taxpayer. To reassure capital markets that the banking system remains resilient and on a solid foundation, the Federal Reserve Board said they would make available additional funding to eligible depository institutions to help assure banks can meet the needs of all depositors.
What to do next
When there are any concerning changes in global market data, it’s important not to make rash decisions and consider the long-term outlook instead.
Please contact us if you have any questions about this market update or want to learn more about Brite Advisors and how we can maximise your pension and investment assets.