With the recent collapse of Silicon Valley Bank and Signature Bank, many people are wondering about the safety of their cash deposits.

Thanks to Federal Deposit Insurance Corporation (FDIC) insurance, most of us are under the insured deposit amount of $250,000. Keep in mind that this number is for individual accounts and you get another $250,000 coverage for a joint account per person. So a couple with individual accounts and a joint account is insured for up to $1 million at each bank where their assets are held.

FDIC deposit insurance only covers certain deposit products, such as checking and savings accounts, money market deposit accounts (MMDAs), and certificates of deposit (CDs). The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, municipal securities, or money market funds, even if these investments were bought from an insured bank.

If you are above these limits, it would be safest to move the uninsured amounts to another bank or brokerage so you can stay within the insured limits. Even though the government took extraordinary steps to insure all deposits at Silicon Valley and Signature banks, it would be prudent to stay within the insured limits.

If you have an account at a brokerage firm, you may notice that you are covered by  The Securities Investor Protection Corporation (SIPC). Unlike the FDIC, SIPC does not provide blanket coverage. Instead, SIPC protects customers of SIPC-member broker-dealers if the firm fails financially. Coverage is up to $500,000 per customer for all accounts at the same institution, including a maximum of $250,000 for cash.

Keep in mind that many brokerages like TD Ameritrade and Fidelity also carry excess of SPIC insurance. For example, Fidelity provides its customers with additional coverage through Lloyd's of London. Within Fidelity's excess of SIPC coverage, there is no per customer dollar limit on coverage of securities, but there is a per customer limit of $1.9 million on coverage of cash awaiting investment. TD Ameritrade provides each client $149.5 million worth of protection for securities and $2 million of protection for cash through supplemental coverage.
The ripple effects of bank failures
The sudden collapse of Silicon Valley Bank sent shock waves through the markets and despite the rapid response by the government to contain the crisis, the aftershock is likely to be felt for the next several months or even quarters.

Banks with less than $250 billion in assets account for roughly 55% of total loan origination in the US. The sudden bank failure will certainly impact the economy through tighter credit. Because of this, Goldman Sachs reduced their Q4 GDP growth forecast from 1.5% to 1.1%.

This Friday we will be hosting our quarterly conference call for clients to provide our perspectives on where we are in the business cycle and the risks/opportunities ahead. If you would like to listen to the replay, please send an email to info@runnymede.com.

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