Headlines about U.S. regulators taking over Silicon Valley Bank and Signature Bank have dominated the financial news recently. You may have questions about what it means for your wealth.
- The issues that affected SVB and Signature Bank are not representative of the overall banking system, which is stable, in our view.
- Regulators have signaled that they will do what it takes to be a backstop to U.S. banks and depositors.
- Events like this underscore the importance of diversifying one’s portfolio across asset classes and securities.
Responses to events like these can be fueled by perception. Let’s explore the reality of what is happening and the potential implications, if any, for your wealth.
SVB and Signature Bank were placed under the control of the FDIC.
SVB’s primary customers were venture capital and start-ups, so when this business declined over the past year, so did the bank’s deposit base. In addition, SVB’s balance sheet had heavy exposure to long- term bonds, and that jeopardized its balance sheet when interest rates rose sharply. Meanwhile, Signature Bank’s ties to the crypto-currency industry, which has been hit with business liquidations, spooked depositors and helped trigger a run on the bank.
For perspective, the assets of SVB, which were higher than Signature Bank’s, comprised just under 1% of total domestic assets held at U.S. banks at the end of 2022, based on Federal Reserve data.
Still, U.S. regulators announced that they will backstop all of SVB’s and Signature Bank’s depositors, so the banks’ depositors won’t lose their money regardless of whether their deposits are insured.
What it means for you
Concerns that other banks may be next to collapse sparked a sell-off in regional bank stocks while prices of Treasury bonds rose as investors sought “safe havens.” Events like this underscore the importance of portfolio diversification to mitigate downside risk while capturing upside.
Edelman Financial Engines portfolios, for example, may diversify across 16 asset classes and thousands of securities.
Moreover, these events are a reminder that it’s a good idea to review your bank accounts to ensure that you are within the FDIC insurance limits. The FDIC insures deposits up to $250,000 per account owner, per institution. Click here to access the FDIC calculator to determine your level of coverage. If you bank at a credit union, click here to determine your level of National Credit Union Administration (NCUA) coverage.
Another reminder: Your wealth plan should have a long-term horizon, measured in decades. That puts you at an advantage. Over time, the market has proven resilient through much worse events such as the 2008 global financial crisis or the recent pandemic, so a long-term horizon may allow your portfolio to benefit from future market recoveries.
It’s important to stick with your plan, stick with the facts and remain invested.