What Happens To Your Money If More Banks Collapse in 2024?

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The year 2023 saw the sudden collapse of Silicon Valley Bank, marking a turbulent period for the banking sector. This event sparked widespread concern about the stability of the banking system, leading to bank runs and a significant intervention by the U.S. government.
While the immediate crisis appears to have abated, the question lingers: What happens to the economy and, more importantly, to your money if more banks collapse in 2024?
Understanding the Current Banking Landscape
Before looking at the implications of future bank collapses, it’s important to note the factors that contributed to the recent banking crisis.
Unlike the global financial crisis of over a decade ago, which stemmed from massive credit losses, the recent turmoil was triggered by surging interest rates. These rates caused a significant decrease in the market value of the U.S. Treasury and government-backed mortgage securities held by banks.
Despite the government’s robust response, the banking system remains under pressure due to rising interest rates and slow economic growth.
Possible Scenarios for 2024
Scenario 1: Continuing Bank Failures
In this scenario, the calm observed in the financial system is short-lived. A series of bank failures occur, leading to a tightening of credit availability for households and businesses. If the Federal Reserve continues to raise interest rates to combat persistent inflation, the banking system could see more losses on security holdings, prompting additional bank failures and runs.
Scenario 2: Inflation Over Financial Stability
Here, the banking crisis briefly subsides, but inflation remains high, prompting the Federal Reserve to aggressively hike interest rates. This scenario results in a significant devaluation of bank holdings of Treasury and mortgage-backed securities, leading to insolvency and failure of several banks.
What It Means for Your Money
Government Insurance and Support
In the event of bank failures, remember that the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000. In both scenarios, the government is likely to step in with extraordinary measures to protect depositors and stabilize the banking system.
Impact on Savings and Investments
If more banks collapse, the immediate safety of your money in banks depends on the amount and the institution. For savings above the FDIC-insured limit, there’s a risk of loss.
Investments in the stock market or other securities could also be affected, as bank failures can lead to broader economic downturns and stock market declines.
Loan Availability and Interest Rates
Borrowers might find it harder to secure loans as banks tighten their lending standards in response to financial instability. Interest rates for loans could rise, making it more expensive to borrow money for homes, cars or education.
The Takeaway
While the current economic outlook assumes the worst of the banking crisis is over, the possibility of more bank collapses in 2024 can’t be ruled out. Another series of bank failures would significantly impact the U.S. economy and could pose risks to individual savings and investments.
As the situation evolves, it’s important to stay informed, diversify your investments and understand the protections already in place for your deposits. Staying prepared is your best strategy for safeguarding your financial future.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.