“I’m on my way to the branch to find my money right now. Tried to transfer it out yesterday didn’t work. You know those moments where you might be really screwed but you’re not sure? This is one of those moments,” one start-up founder told the BBC.
So are large deposits safe in USA, how to know which banks are safe
FDIC insures deposits up to 100,000 dollars. Beyond that it’s anyone’s guess. I don’t know if there are any changes to FDIC insurance amount, but the whole point of FDIC is so people don’t make bank runs because of rumor of bank closure.
No large deposit is safe, since not insured. But generally large diversified banks are better, but you don’t really know before they collapse, so better spread capital between different banks, different countries, and different classes of asset.
This bank seems to only have two kinds of customers (startups + VCs) and one strategy to generate money from its cash holding. That wasn’t a stupid strategy btw, it just backfired because their customers (VCs) panicked.
It isn’t much, but remember FDIC was created in the 30s during the Great Depression, and 100,000 dollar was a LOT of money back then, I mean that’s probably the yearly salary of something like 1000 working men. So they covered damn near everyone except for the millionaires, and they have other arrangements similar to how billionaires have their own arrangement. The objective behind FDIC was to prevent bank runs or people storing money under the mattress (which there was a lot of, banks really screwed people’s trust back then) because money under the mattress isn’t going to help a country’s economy, and they needed people to stop making bank runs which was accelerating bank closure when it was already so bad that banks had to recall loans in order to stay afloat.
The basic insurance limit represents the minimum insurance
coverage available to a bank depositor. The original limit was
set at $2,500 in the 1933 Act, but was increased to $5,000,
effective June 30, 1934. This limit remained in effect until
1950, when it was increased to $10,000 as part of the Federal
Deposit Insurance Act. The limit was next increased to $15,000
in 1966, to $20,000 in 1969 and to $40,000 in 1974. In 1974,
the insurance limit for time and savings accounts held by state
and political subdivisions was increased to $100,000;
16th largest and a very influential bank in the tech sector has a bank run and is taken over
Currently companies who have more than 250k there won’t have access to funds and many people won’t be paid
This is a big problem and worrying that other banks may collapse too
Some money wizard was saying months ago get your money out of banks now
Fdic ensures only up to 250k
Not a banker so not understanding it all but apparently the bank bought bonds with low yields and decided to sell 20 some billions of them and retain a loss of some one point 8 billion and then sell over 2 billion of stocks to offset
But news of this caused a bank run and then SVC bank had to sell more bonds to meet cash withdraws at further losses
There’s no magic here, banks take in deposits and lend them out to make a return. When the loans go sour, money is lost. People whose balance is under 250K are obviously safe, but for the rest, they’ll probably not gonna lose everything above 250K because the FDIC will sell some assets, but they will not be made whole.
I have to wonder why a person would have that much in a savings account at 0.00000001% interest when the stock market averages 6-9% generally. Yeah, you could have nothing if the stock market crashes, but your money over 250k isn’t worth anything if the bank fails either!
Silicon Valley Bank is not your typical bank. Only 2.7% of the deposits are fully covered under FDIC insurance. The bank is really where startups as well as some small and medium tech companies would deposit their money. And then you have the C level executives of those companies as well as part of their customer base. Silicon Valley Bank is also one of the very few banks who would extend loans (including mortgages) to tech people based on their stock portfolios, etc. All in all, if you think about it, it’s like a bank for tech bros, and because they are all so smart, they think that putting every single egg in one basket will not hurt them, because you know why, they are all geniuses!!!