Silicon Valley Bank, founded in 1983, was once the 16th largest U.S. bank. The bank served venture capital firms and numerous tech executives and had $209 billion in assets as of the end of 2022. Over the course of two days in March 2023, the bank failed, making it the 2nd major bank collapse in history.
The collapse occurred due to various factors, including:
Depositors withdrew their funds simultaneously due to concerns about the bank's solvency.
A bank's failure may make you skittish about your capital. How could it not? This article will cover how to protect yourself and your wealth.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects the funds depositors place in banks and savings associations. The FDIC was created in 1933 in response to the thousands of bank failures in the 1920s and early 1930s.
FDIC insurance automatically applies to all deposit accounts at insured banks. The full faith and credit of the United States government back the insurance up to the insurance limit. The full faith and credit of the United States government back the insurance. Even if a bank fails, the government guarantees depositors will receive their insured balances.
FDIC insurance covers all deposit accounts, including:
The protection is up to the insurance limit of $250,000 per depositor, per insured bank, for each account ownership category.
FDIC insurance does not cover the portion over that amount
If a depositor's accounts at one FDIC-insured bank or savings association total more than $250,000, FDIC insurance does not cover the portion over that amount. In the event of a bank failure, the depositor may lose funds that exceed the FDIC insurance limit.
Evaluating a bank's health involves assessing various financial indicators and understanding the overall banking environment. Here are some steps you can take:
These are just indicators and should be part of a broader analysis. Each measure has limitations and may not provide a complete picture of a bank's financial health.
There are several strategies to ensure your deposits stay within the FDIC coverage limits:
The FDIC provides separate coverage for deposits held in different account ownership categories, such as:
Depositors may qualify for over $250,000 in coverage at one insured bank if they own deposit accounts in different ownership categories.
You can increase your coverage by opening accounts at more than one FDIC-insured bank. Each separate bank has its own $250,000 insurance limit.
Real estate investors can hedge against future bank failures by diversifying their investment portfolios. Here are some strategies:
All investments carry risk, and it's essential to research and seek advice from a financial advisor before making investment decisions.
Banks can fail at any time. As a result, the FDIC insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category, but amounts exceeding the FDIC insurance limit are not insured.
Individuals should spread money across different account ownership categories, open accounts with multiple FDIC-insured banks, or use the CDARS program.
Real estate investors can hedge against future bank failures through diversification, including investing in REITs, stable foreign currencies, bonds and TIPS, non-correlated asset classes, and keeping cash reserves.
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Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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