ICYMI – Over the last 72 hours, Silicon Valley Bank, a bank with $209 billion in assets – has failed.
The regulators swooped in this morning and shut it down.
The last bank of this size to fail was Washington Mutual during the Financial Crisis.
Should you be worried about the banking system?
No. Silicon Valley Bank was unique in that most of their assets were NOT in small consumer deposits unlike BofA, Wells Fargo, et al.
Consumer deposits are “safe money” for banks and they make up 50% of the assets of big banks. SVB, by comparison, only had 2.5% in these safe assets.
The best lessons are those learned from OTHER’s mistakes.
So here are 3 personal finance lessons to learn from the SVB failure.
1. BAD THINGS HAPPEN TO GOOD COMPANIES
SVB was the largest bank in Silicon Valley and the 18th biggest bank in the country. What led to their overnight demise was basically a bad financial decision coupled with an awful press release.
Over the last 3 days, their stock price dropped 85%. It dropped so fast, that the NYSE halted trading, so there are a lot of people still holding shares that don’t want to be.
THE LESSON: Stuff happens. All that company stock you’re holding onto is not bulletproof. Things can happen in the blink of an eye that can completely destroy the financial future you worked so hard to achieve.
2. DIVERSIFY
Just like someone who has 50% of their net worth in a single company (broken record, much?) SVB failed because their asset base wasn’t diversified.
THE LESSON: Protect yourself from the stuff hitting the fan by diversifying all of that company stock.
3. WATCH YOUR FDIC LIMITS
Each bank account is only insured up to $250,000 by the FDIC.
The unfortunate truth is that SVB had $150 billion in deposits over the FDIC limit. Without a federal government bailout, that’s potentially $150B that will go up in smoke.
THE LESSON: Don’t keep more than $250k in any single bank account. There are tricks to increasing your FDIC coverage like titling your accounts differently – i.e. one in your name + one in your spouse’s name + one joint account = $750k of FDIC insured deposits.
For more info check out my most popular YT video about FDIC insurance. (Go figure.) Link in the comments.
I hope anyone affected by this is made whole, but I also hope everyone watching from the sidelines can learn from it.
