Thoughts on Silicon Valley Bank
We, like you, are monitoring the banking industry following last week’s FDIC announcement regarding Silicon Valley Bank (SVB). First and most important, we do not use, nor have we recommended SVB for any service. May the following Q&A help address any concerns you have on the topic.
Will I be impacted by the collapse of SVB? What if there are more banks to fail?
If you do not have a checking or savings account with SVB, you will not be impacted. We do not conduct any business with SVB. Please remember that FDIC coverage exists for the purpose of protecting funds in the event of a bank collapse; and we consistently recommend that you monitor your bank holdings to ensure you’re within range of the FDIC limits – see next question for specifics.
How can I track my FDIC coverage?
FDIC coverage covers up to $250,000 per account owner. You may check your coverage using the FDIC EDIE calculator: https://edie.fdic.gov/calculator.html
Is my cash management strategy of using a jumbo money market mutual fund at risk?
Mutual funds are covered by SIPC and not FDIC. Per SIPC’s website: “Money market mutual fund shares held in a customer’s account at a brokerage firm qualify as “securities” under the Securities Investor Protection Act (SIPA) and therefore are subject to the $500,000 limit of protection, not the $250,000 limit applicable to cash. It is important to remember that, although many investors treat money market funds like cash, they are securities and, as such, may lose value. In a liquidation proceeding under SIPA, subject to the limits of SIPC protection, SIPC will return money market fund shares to a customer, but will not protect the customer against any decline in the value of those shares.” The following link provides FAQs: https://www.sipc.org/for-investors/investor-faqs
How can I stay prepared for the unknowns that may be coming?
As always, let’s begin with focusing on what we can and cannot control. We do not know, nor can we control, how long this may last or how deep this problem may grow. We can control our savings by diversifying across more than one institution and/or combining using a savings account with a jumbo money market (combining FDIC and SIPC). The risk of bank failures is not a new phenomenon. This risk has always existed, which is why FDIC coverage exists. FDIC is for banks and SIPC is for broker-dealers. Both coverages exist to address failure risk. Lastly, I support the cash management strategy of holding some cash at home as a backup emergency fund. It is unlikely this cash source would be needed. It is simply one more method to diversify one’s total cash management.
As always, please reply or call if this prompts any questions or items you would like to discuss.
