Bank Crash Aftermath

There was no jumping from skyscrapers like in 1929, but over the last few weeks, business owners have been on edge. Their concerns stem from the recent beating the banking industry has taken. Three high- profile banks, many fueled by small business owners, collapsed. This led to bank runs reminiscent of previous financial breakdowns, with customers pulling large amounts of money from their lending institutions.

It all began on March 8th , when California’s Silvergate Bank, founded more than 30 years ago but recently making a name for itself as a key player in the crypto industry, stated that it was winding down operations and liquidating its bank. What was the reason? The bank had suffered around $1 billion worth of losses in the last quarter of 2022 following the collapse of one of their largest clients, crypto exchange company FTX.

Other dominoes quickly fell. Silicon Valley Bank (SVB), also founded in the Golden State, was next, announcing to investors that it would need to raise $2.25 billion for its balance sheet. Panicked customers quickly withdrew their funds, leaving SVB with a negative cash balance of nearly $960 million and the unfortunate title of second largest bank failure in United States history. In the wake of the bank’s collapse, customers wary of their financial vulnerability pulled out, resulting in the fall of another, New York-based Signature Bank.

Biden Speaks Up, FDIC Steps In

To help calm nervous investors, President Biden spoke up. “This is not 2008,” he said in a White House speech. He offered reassurance to investors and the public that the regulatory takeover of these banks, and the subsequent rescue of their depositors, showed that a financial crisis was not in the cards. “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.” 

Insurance through the Federal Deposit Insurance Corporation (FDIC) played a significant role in calming concerned customers. Created in 1933 to restore America’s trust in the banking system following the Great Depression, the FDIC insures up to $250,000 per depositor, per ownership category. For those banking with credit unions, the similar National Credit Union Administration (NCUA) does the same.

Despite the President’s words, some remain skeptical, especially as stocks plummeted. First Republic Bank shares dropped 75 percent and trades of the company were temporarily paused. Other regional banks were hit as well, with Comerica Bank registering a 30 percent drop, KeyCorp falling 28 percent, and First Horizon shares dropping 20 percent.

“The only losers are investors,” says Neal Gussis, co-founder and principal at CCM Commercial Mortgage. “Depositors don’t need to be concerned. Customers with $250,000 or less will see their money again.”

Protect Yourself from a Bank Crash by Diversifying Your Investments 

Banks failing is not new; 565 U.S. banks have failed in the new millennium, an average of 25 per year. It’s still a far cry from the nearly 10,000 that failed during the Great Depression, but it can still be worrisome for small business owners.

Gussis says small business and self-storage owners should remain calm. “What this event did was stabilize the banking system,” he says. “If the FDIC hadn’t come to the rescue, the cycle could’ve continued. People would’ve been pulling their money out of banks left and right, and there would’ve been a real problem. But they stepped in and that’s a good thing. It shows people that they have protection.”

Shawn Hill, principal and founding member of The BSC Group, agrees. “It’s important not to freak out. That leads to bank runs, and that is what caused the current situation.” He understands that fears linger, however, which is why he also recommends diversifying. “If you have large sums of money, it’s best to ‘spread the wealth,’ and use more than one financial institution.”

“You never want to put all your eggs in one basket,” Gussis adds. “It’s great to have a strong relationship with one bank, but like any relationship, things can go south. They may switch policies, management, and so on. So, it’s best to keep your holdings in multiple banks. The magic number is $250,000. If you’re keeping more than that with one bank, move some money around.”

Protect Yourself from a Bank Crash by Checking The Health Of Your Bank

While the FDIC’s assurances have helped stave off a national crisis, some bank prospects remain unstable. Shares in First Republic, for example, have plunged again after its credit rating was recently slashed due to depositors pulling tens of billions of dollars from their accounts. To halt the run, a press release from the FDIC on March 16 th stated that “11 banks announced $30 billion in deposits into First Republic Bank. This show of support by a group of large banks is most welcome and demonstrates the resilience of the banking system.”

While this is good news, Hill still recommends working with a financial investor to find alternative places to keep your cash if you’re holding large sums. In addition, he says it’s a smart move to investigate the health of your bank to be sure you’re not at risk.

“Look at what percentage of your bank’s deposits are under the $250,000 limit,” suggests Hill. “People holding less than that aren’t likely to make a bank run since that amount is insured. The problem with SVP is that most of their clients were over that amount. Fear prompted them to rush the bank and pull out their money.”

Another factor to look into is a bank’s loan-to-deposit ratio. This measures what percentage of a bank’s deposits are lent out. If the ratio is too high, it’s a sign the bank may not have enough liquidity to cover unexpected withdrawals. To check in on your bank, you can use the FDIC’s BankFind Suite or Deposit Accounts by Lending Tree. A ratio of more than 100 is a sign that a bank may be at risk. 

“It comes down to not leaving yourself exposed,” Gussis concludes. “Diversify, investigate, and wherever you place your money, make sure it’s with an FDIC-insured bank.” 

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Brad Hadfield is a staff writer and news researcher for Messenger. He also manages the MSM website.