Is my money safe in banks in 2023?
What’s happening with the banking industry and what should you be aware of?
I usually start my day with a glass of warm lemon tea and some sizzling business news on my kitchen island top. But this month has been offering too many sizzling headlines. March has definitely been a hot month so far, starting with the infamous Silicon Valley Bank crisis to the TikTok CEO Shou Zi Chew’s viral testimony. Here, is an attempt to bring as many information as possible about the ongoing banking crisis of 2023, in simple words.
The start of this incredible journey of the global banking system crisis stretches back to long ago but for the sake of sanity we are going to stretch it as far back as December 6th, 2022.
Dec 6th, 2022, Silvergate Capital Crisis
A Public Letter from Silvergate Capital Corporation Chief Executive Officer Alan Lane was released in an attempt to calm the market of Crypto Banking from certain malicious rumors. The main content of this letter tried to assure people that the famous crypto bank is doing fine and opportunists are looking to profit from market instability by distributing speculative materials about FTX, one of their major customers.
Despite the CEO of Silvergate insisting that everything was fine exactly one month prior, the bank’s Q4 filing for 2023 shows that crypto customers’ deposits decreased from $11.9 billion to $3.9 billion in just three months. Additionally, 150 million of the bank’s deposits are held by customers who have declared bankruptcy, and 200 employees will be laid off. The stock price of the corporation was down 46%. The withdrawals happened at the same time as a Silvergate customer, the crypto exchange FTX, went bankrupt in a scandal, casting doubt on the sustainability of the digital asset sector. The corporation completely shut down by March 9th, raising many eyebrows to the ceilings.
March 11th, 2023, Silicon Valley Crisis
Two days after Silvergate Bank announced its closure, Silicon Valley Bank is also having trouble. Before trading was suspended on Friday morning, its stock price fell by more than 60%. It almost completely sold off all of its securities, totaling about $21 billion, for a $1.8 billion loss. Despite being a catastrophe, the pandemic reportedly raised close to $130 billion in venture capital investment in the United States alone in the year 2020. In 2023, as the pandemic restrictions slowly subsided, the fundings slowed and VC-funded businesses were burning cash faster than they expected. The bank attempted to sell $2.25 billion worth of additional shares to settle the hole in the balance sheet.
At this point, by March 11th, 2023, Silvergate has departed, Silicon Valley Bank has been taken over by the FDIC and other banks have suffered billion-dollar losses. It is uncertain whether or not a number of IT firms will be able to continue operations as the authorities figure out the situation. For more information, you can read Liz Lopatto’s piece on interest rates and what they represent for IT firms.
March 13th, 2023, Signature Bank Crisis
Signature was one of two extensively utilized banks in cryptocurrency. Similar to Silvergate, which failed on March 8th, Signature had a network that enabled real-time dollar transfers between cryptocurrency firms. Investors are alarmed since this is the third large bank to fail in the past week. By December 31, 2022, Signature had $88.59 billion in deposits. The bank is now under the control of the New York Department of Financial Services.
With cash invested in the bank, businesses like Etsy, Roku, and Roblox are now no longer able to access venture capital and startup funding. Due to the abrupt failure of Silicon Valley Bank, Etsy warns that some sellers won’t get their payments on time around March 13. Silicon Valley Bank was closed down on the same day by California authorities and the Federal Deposit Insurance Corporation.
March 15th, 2023, Credit Suisse Crisis
Swiss regulators declared a backstop for the nation’s second-largest bank after witnessing the share price of Credit Suisse (CS) drop by as much as 30%. Although the immediate market panic was reduced, the global player is still not out of the woods. Customers and investors are concerned since the company doesn’t appear to have a solid plan in place to stop the long-term collapse of its business.
On the 19th of March, in an emergency rescue plan intended to calm the financial markets, UBS, the largest bank in Switzerland, agreed to purchase its struggling rival Credit Suisse.
March 16th, 2023, First Republic Bank Crisis
First Republic Bank was on the verge of failure as a result of clients taking their savings out. The CEO of America’s largest bank, Jamie Dimon, and US Treasury Secretary Janet Yellen developed preparations for a private sector bailout during a meeting in Washington. As a consequence, First Republic and a consortium of US lenders came to an arrangement to put tens of billions of dollars in cash into the company in order to stop the bleeding.
Silvergate, SVB, and Signature are not the only banks experiencing issues. There’s a chance that numerous commercial banks are under comparable strain, which might lead to additional distressed institutions.
The current financial crisis affects everyone, whether they use traditional or blockchain financing.
According to this analysis, even insured depositors may experience impairments if half of the uninsured depositors swiftly withdrew their money from these 186 institutions since the banks wouldn’t have enough assets to fully compensate everyone. The Federal Deposit Insurance Corporation (FDIC) could be compelled to intervene as a result of this pulling us back to an exact scenario of the financial crisis of 2008.
In the United States, banks are beginning to fail a year after the Federal Reserve began to hike interest rates. Now this step is of great importance because, since 2008, central banks have periodically injected electronic funds into the banking system at extremely low interest rates. The Lehman Brothers crisis led the banking system to a near to zero interest rate which resulted in the boom of tech firms around the world.
So, are the banks suffering due to the increased interest rate?
The fundamental problem here appears to be rising interest rates. Along with slowing VC investment, the rate increase also caused startup businesses to spend the money they had retained in the bank. Moreover, increased interest rates meant that the bonds in Silicon Valley Bank’s portfolio were worth less when sold.
A number of smaller banks are being affected by problems with rising interest rates and general volatility, with First Republic Capital in San Francisco’s shares falling after its parent firm announced the sale of assets for comparable reasons, along with PacWest Bank.
This is slowly turning into a worldwide phenomenon.
So, Is your money safe?
You almost likely don’t need to be concerned if you have less than $250,000 in an FDIC-insured account with a US bank. Up to $500,000 is protected for joint accounts.
European nations run comparable initiatives. Every depositor, up to 100,000 Swiss francs ($108,000) are guaranteed in Switzerland.
The European Commission has committed to return €100,000 ($105,431) in deposits to customers of bankrupt banks. Joint account holders are eligible for a joint payout of €200,000 ($210,956).
If a bank fails in the UK, depositors may be eligible to get up to £85,000 ($102,484) back. For joint accounts, this amount increases to £170,000 ($204,967).
What impact does this have on loans or morgages?
Banks under pressure will give considerably more consideration to a borrower’s creditworthiness, whether they are firms searching for loans or individuals looking for mortgages. So, in short, getting loans will be difficult until this situation is resolved.
Should I pull my money out?
Since these banks shut down news, people are becoming aware about where their finances are. Jay Hatfield, CEO of Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF, said that taking all of your money out of a bank was illogical. He suggests that people confirm that their banks are covered by the FDIC, which will keep the money safe for the time being.
On its website, the FDIC offers a variety of information. A list of FDIC-insured banks is provided by the “bank suite” application, and the Electronic Deposit Insurance Estimator determines the insurance coverage of various bank deposit accounts.
Hatfield suggested distributing the funds across many banks.
“Just why not? Why not establish four accounts and have them insured if you have $1,000,000? “asked Hatfield. Why stress over it?
How do I know if my bank is in trouble?
Your bank’s health matters a lot in keeping your finances healthy. It is not entirely possible for you or anyone to be 100% certain if your bank is in trouble or walking towards one. But there are some warning signs that you can watch out for and some precautions you can take to keep your finances safe if such a time comes. This article in my opinion talks about what to look out for and precautionary steps to secure finances in case your bank fails. You can give it a read and if time allows, I will try to compile this information in another piece for easy reading.
What about recession in the US economy?
The likelihood of a US recession occurring within the next 12 months has increased, according to Goldman Sachs, which made this announcement on Wednesday, last week. The likelihood that the US economy could experience a recession within a year has increased from 25% before the start of the banking sector crisis to 35%, according to the bank.
A decline in the property market, bank failures, and an increase in unemployment are three traditional indicators that a recession is about to hit the US, as Dhaval Joshi of BCA Research noted.
According to Joshi, banks frequently collapse right before a recession starts.
“No American bank collapsed in 2005 or 2006 before the crisis that started in December 2007. Just before the recession started, the first three bank collapses occurred in February, September, and October of 2007.
So in conclusion, Silicon Valley Bank (SVB) in the United States went bankrupt unexpectedly in March 2023. The bankruptcy of Signature Bank and the collapse of Silvergate Bank in the same week foreshadowed the impending collapse of the global financial sector. The acquisition of Credit Suisse by UBS suggests that this financial crisis may pose a danger to the whole world’s economy, not just the American economy.
The fall of Silicon Valley Bank was the biggest bank failure since the financial crisis of 2008, and it shocked the world’s financial markets. When worries about the financial stability of other institutions increased among investors and consumers, American regional banks came under particularly significant pressure. The news may panic many but it won’t be wise to withdraw all of the cash at once. The crypto market is now seeing good days and the crypto banking is suffering due to the shutdown of two of the biggest Crypto Banks in U.S.
Overall, many suggests that the financial market today is fundamentally different from the one that existed before the financial crisis of 2008, and the financial system has evolved into one that is more resilient and better able to withstand potential shocks, even though there are always risks and uncertainties in any market.
For further read, please refer to the following links:
https://www.theverge.com/23638474/svb-collapse-silvergate-silicon-valley-bank-tech-crypto
https://www.weforum.org/agenda/2023/03/banking-crisis-svb-financial-jargon-explained/
https://edition.cnn.com/2023/03/17/business/global-banking-crisis-explained/index.html
https://www.noradarealestate.com/blog/which-banks-are-in-danger-of-failing/
https://www.theverge.com/2023/3/10/23633734/silicon-valley-bank-startups-venture-capital
