How to Avoid a Cash Crisis

As you likely know, both Silicon Valley Bank (SIVB) and New York-based Signature Bank (SBNY) were shut down by regulators.    SIVB had $209 billion in assets, making it the second-largest bank failure in U.S. history (behind Washington Mutual, which failed in 2008). 

SIVB was heavily invested in long term (10-30 year) bonds that experienced substantial losses over the past 15 months as interest rates have increased. In recent weeks, depositors began to withdraw their funds. SIVB was not able to cover all depositor withdrawals. The reporting indicated that 97% of the deposits at Silicon Valley Bank were in excess of $250,000, meaning that almost all of the bank’s deposits were not insured by the Federal Deposit Insurance Corp. (FDIC). According to a joint statement issued by the Federal Reserve, Treasury and FDIC, all depositors at both failed banks (even those over FDIC limits) will be paid back in full. This action was an attempt to prevent a run at other regional banks.

Market volatility is up significantly but still far below the highs seen during the 2008 financial crisis and the beginning of COVID-19 in 2020. It is important to note that the economy is in a very different place today than when Washington Mutual failed in September 2008. In the three months leading up to the Washington Mutual failure, the economy lost over a million jobs. In the three months leading up to the Silicon Valley Bank and Signature Bank failures, the economy added over a million jobs.

Here’s what to do if you haven’t already.  Make sure any cash held in bank accounts is under FDIC protection limits. It is difficult to predict what the market response will be moving forward. These aren’t the first bank failures (in fact, 489 banks failed from 2008 to 2013) and they won’t be the last bank failures. During periods of market stress, you will see a lot of short-term movement in the market that is completely unpredictable.  So stick with your long-term strategy even in the face of short-term market volatility. This may be easier said than done, but staying disciplined in your strategy gives you the best chance of achieving your goals.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy or confirmed adequacy of this information. R-23-5263