(NewsNation) — Before last week, most Americans had probably never heard of Silicon Valley Bank (SVB). It was the 16th largest bank in the country that primarily served technology companies and venture capital firms before it failed on Friday following a wave of withdrawals by fearful depositors.
The collapse was the second-largest bank failure in history and had ripple effects for similar financial institutions. By Sunday, New York-based Signature Bank had also failed.
Federal authorities took steps over the weekend to prevent the turmoil from spreading, but many Americans will be left wondering whether the failures are a sign of things to come.
Financial experts NewsNation spoke to agreed the recent collapses are not cause for panic, and believe SVB’s downfall stemmed from mismanagement rather than systemwide issues.
will everyday Americans be impacted?
Those without deposits at SVB or Signature Bank could still feel the impact of subsequent tumult in the financial sector. Multiple bank stocks plunged Monday. Shares of First Republic Bank were down over 60%. Charles Schwab stock fell as much as 23% before regaining some of its losses in the afternoon.
Uneasiness on Wall Street may impact consumers’ financial portfolios in the short term.
“That fear ripples through the markets and shows up, unfortunately, in our retirement plans,” said Dan Roccato, a finance professor at the University of San Diego.
SVB’s collapse also set off widespread concerns among tech insiders and startup founders that companies would be unable to make payroll in the coming days — a scenario that would leave employees without a paycheck.
Those fears appear to be somewhat alleviated after the government’s action Sunday night. The Federal Deposit Insurance Corporation (FDIC) has said it will pay a portion of uninsured deposits in the form of an “advanced dividend.”
Are major banks vulnerable?
Bank runs are nothing new but there are a few factors that suggest SVB’s downfall could be a unique, black swan event. Unlike large retail banks whose names are more familiar to the average American, SVB largely served technology startups and venture capital firms. As a result, roughly 95% of its deposits were uninsured in business accounts above the $250,000 FDIC ceiling.
With a narrower, concentrated deposit base, SVB became more vulnerable to a mass withdrawal. When word spread that the bank’s investments were struggling, enough depositors attempted to pull their money out that the bank collapsed.
“The failure of Silicon Valley Bank was, in large part, their own doing,” said Greg McBride, the chief financial analyst at Bankrate.com. “They took a leap off the high dive without making sure there was water in the pool.”
Roccato agreed that the bank’s failure mostly boiled down to mismanagement and misunderstanding its client base. For that reason, the financial bleeding could remain fairly contained.
should i be worried about my own savings?
The recent failures are no reason to panic, both experts agreed.
For the vast majority of Americans with deposits in checking, savings and money market accounts amounting to less than $250,000, their money is backed by the federal government via FDIC insurance.
“The bottom line for accountholders — be it businesses or consumers — is that the money that you have in banks and credit unions is safe,” said McBride. “You don’t need to do anything.”
Those looking to reduce risk should make sure their financial institution is FDIC-insured, Roccato noted. Families with more than $250,000 to deposit should open separate accounts to make sure the full amount is covered.
Since FDIC insurance began in 1934, no depositor has lost a single penny of insured funds due to bank failure.
are taxpayers footing the bill?
On Monday, President Joe Biden insisted that recent maneuvers to shore up the financial system would not fall on the American people.
“No losses will be borne by the taxpayers,” said Biden. “Let me repeat that: No losses will be borne by the taxpayers.”
Instead, the Biden administration says the costs will be covered by FDIC fees which are paid by the banks.
Republican presidential candidate Nikki Haley was quick to call the move a “bailout” and said depositors at healthy banks would be forced to step in when the deposit insurance fund runs dry.
Prominent Wall Street investor Bill Ackman praised Biden’s decision and said it was not a bailout, pointing out that the insurance fund would recoup losses by assessing more premiums on the banks.
It remains to be seen whether those premiums are ultimately passed on to bank customers.
what did federal authorities do?
On Sunday, federal authorities took steps to ensure all clients at both banks could access their money, even those with holdings above the federally-insured limit of $250,000.
Regulators did so by transferring all deposits to newly created “bridge banks” that are backed by the FDIC. The move will allow customers to access their funds by ATM and debit cards as if nothing has changed.
The plan is intended to shore up confidence in the banking system and prevent any additional bank runs.
“All depositors of the institution (SVB) will be made whole,” the FDIC said in a statement Monday.
