“The only thing we have to fear is fear itself.”
When FDR uttered those now-famous words during his 1933 inaugural address, he alluded to the fact that the banking system is based on public confidence.
Over the last two weeks, that confidence has been rattled by an extraordinary series of bank runs and collapses reminiscent of Roosevelt’s own time.
If you’re among the shell-shocked customers whose bank failed with your money inside over these tumultuous last few days, there’s no need to storm your local branch like a panicked depositor during the Depression.
Take a breath, calm down and read the following synopsis of what you need to know.
In a tumbling of dominos not seen since the Great Recession, four banks failed in just 11 chaotic days:
- March 8: Silvergate Capital Corp.
- March 10: Silicon Valley Bank (SVB)
- March 12: Signature Bank
- March 19: Credit Suisse
A fifth bank, First Republic, is currently teetering on the precipice of insolvency.
The complex particulars of each case are beyond the scope of this article. But each situation involved a now-familiar pattern of financial institutions assuming reckless risk in pursuit of profits when times were good that proved unsustainable when conditions soured.
Silvergate, for example, followed the crypto industry down the drain. SVB bet big on mortgage-backed securities when interest rates were low but, when rates rose, was forced to sell huge portions of its bond holdings at a massive loss.
Although there were no digital deposits or cryptocurrencies during the Great Depression, the spiral of fear that engulfed the banking industry in the 1930s was identical to the sentiment sweeping the country today.
Statista Research sums up the so-called negative feedback loop phenomenon neatly:
- The public learns about real or perceived weaknesses within a bank, usually involving liquidity issues.
- Fear and uncertainty spread among the bank’s customers.
- Customers begin withdrawing deposits.
- Public confidence erodes even more.
- Depositors start making frenzied withdrawals en mass, which further diminishes liquidity.
- The bank is forced to sell assets, often at a loss, to satisfy those withdrawals.
- Fear becomes panic.
- The bank becomes insolvent and collapses.
If you have your money in one of the aforementioned banks, don’t succumb to the negative feedback loop. You’re benefiting from the lessons learned during the Great Depression.
The Federal Deposit Insurance Corporation (FDIC) guarantees deposits on qualifying accounts up to $250,000. Under that amount, your money is safe.
- Insured deposits from a failed bank will be moved to another FDIC-insured bank or paid out directly.
- Uninsured deposits, while not guaranteed, will usually come back to you as receivership certificates to be paid when the bank’s assets are liquidated.
- The FDIC usually pays insurance the next business day.
- The FDIC creates bridge banks to give customers uninterrupted access to their money if their institution fails.
You don’t have to take any action to move the process along. When it seizes or closes a bank, the FDIC notifies all customers before sending checks or assigning them new accounts at bridge banks. You’ll still be able to use the ATM, write checks, withdraw cash and access your safe deposit box.
“If your deposits are insured, there’s not much to do but wait to get your money,” said Alexa Serrano Cruz, CAMS, a banking expert and certified anti-money laundering specialist for Finder. “Historically, the FDIC typically takes one to two business days after the bank closes to give you back your money. They’ll either give you your insured balance through a new account at another bank or via a check.”
Prepare for the Transition
That said, you don’t have to sit on your hands during those tense first few hours and days. Step 1 is learning about the process that’s unfolding, getting to know your new bank and keeping up with real-time alerts.
“Visit the FDIC website for specific information about the bank and what steps need to be taken as a client and depositor,” said Charles Claver, senior vice president and director of investment management and trust for First Bank. “There will be information on the current bank to inform clients of their rights and protections.”
Once you’re up to speed, do some financial sweeping up.
Check your compromised account for pending or upcoming automatic payments or transfers — you might need to cancel them and/or notify payees about the situation — and redirect any direct deposits to your new account.
You Could Be Next — Prepare for the Worst
While this kind of turmoil is rare, it’s hardly unheard of. According to the FDIC, there were 563 bank failures between 2001 and 2023, mostly concentrated around the Great Recession:
- 25 in 2008
- 140 in 2009
- 157 in 2010
- 92 in 2011
- 51 in 2012
- 24 in 2013
In fact, in the entire 21st century so far, there have been just five years without any bank collapses.
Knowing that, you shouldn’t relocate your cash to the safety of your mattress — but you should prepare for what is a fairly common calamity by following bank depositor best practices:
- Never keep more than $250,000 in a single account.
- Consider dividing your money into accounts in different banks.
- The current situation only adds context and urgency to something you’ve heard a million times: You must build emergency savings to survive the financial curveball that’s always just one pitch away.
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