Two banks, Silicon Valley Bank and Signature Bank, failed recently, leading to concerns that this could lead to a system-wide contagion and affect other regional and local banks. Although experts say that Americans' money in those banks is safe, they suggest people diversify their assets and cash to help reduce the risk.
The Federal Deposit Insurance Corporation (FDIC) guarantees that Americans with less than $250,000 in the bank are safe, and the FDIC will make SVB customers whole, even if they had more than $250,000 in the bank. For customers with more than $250,000 in a bank, it's advisable to diversify money into two or three other banks or put some of that money in federal bonds, which earn interest.
Haydar Haba, managing partner of venture capital firm Andra Capital, recommends choosing a bank with a "Prime-1" rating from Moody's Analytics, which considers a bank to be Prime-1 if it "reflects a superior ability to repay short-term obligations."
The recent failure of Silicon Valley Bank and Signature Bank has been a "wake-up call" for Americans to ensure their money is safe and within FDIC limits and rules, according to Matthew Goldberg, an analyst at Bankrate. He saHaba advises diversification and not to put all your eggs in one basket.
The collapse of Silicon Valley Bank has been linked to multiple rounds of interest rate hikes over the past year, which caused customers' assets to lose value, prompting depositors to withdraw their money in a swift bank run. The same day the FDIC announced it would make SVB customers whole, New York's state regulatory body took over Signature Bank after a similar bank run and a sharp drop in its stock. Some investors criticized the $30 billion rescue plan for First Republic Bank, which was announced through uninsured deposits from 11 of the country's biggest banks, saying it creates a false sense of confidence.
A bill proposed by Democratic lawmakers to enhance regulations on small and medium banks might not pass the Republican-controlled House. The bill would reintroduce provisions of the Dodd-Frank Act that had been limited in 2018, including stress tests and enhanced risk-management practices.
In the banking system, Swiss banking giant Credit Suisse's stock fell more than 60% on Monday morning, hitting a record low of 91 cents, one day after its rival UBS announced plans to buy all of its shares in a $3.2 billion rescue plan. Shares of Credit Suisse, which had been mired by controversies over charges of money laundering, tax evasion, and links to collapsed hedge fund Archegos and financial services firm Greensill Capital, fell after the bank admitted last week to "material weaknesses" in its financial reporting.