Last weekend was a wild ride for the banking industry and depositors everywhere. Silicon Valley Bank experienced an old fashioned “run on the bank” that forced the FDIC to close it on mid-day Friday. Remember Jimmy Stewart in “It’s a Wonderful Life”. Over the weekend another bank, Signature Bank, was also closed by regulators. Both of these banks were banks that catered to specific volatile industries, “tech startups” and “crypto currency” respectively. Additionally, it has been reported that both banks had a higher than normal amount of uninsured deposit accounts. Late yesterday afternoon the FDIC, Treasury and Federal Reserve announced that all depositors in both banks would have all of their funds available on Monday morning.
A number of our clients are asking what they should do in light of this situation. The first answer is do not to panic. All deposits are insured up to $250,000 per individual or company. Note that having multiple accounts does not increase the deposit insurance limit, there are specific rules regarding how to compute deposit insurance limits. If you have more than $250,000 in any FDIC insured bank you should call your banker to discuss how to maximize your deposit insurance limits or to establish a “sweep” account to lower your deposits to the FDIC insured limit. Sweep accounts move amounts in excess of the deposit insurance limit (or other amount agreed to by the Bank and account holder) out of the bank on an overnight basis. These funds are typically invested in a money market funds secured by U.S government securities. This is a safe and effective way to limit your exposure above to the deposit insurance limit of $250,000.
Again, don’t panic. However, if you have deposits above $250,000, call your banker to discuss how to limit your exposure.
For more information, reach out to your BrownWinick attorney.
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