The Silicon Valley Bank and Signature Bank collapses rattled financial markets, leaving investors wondering what other shoes might drop and how that could affect their portfolios.
1. What to Know About SIPC, FDIC Insurance
Leyder "Aiden" Murillo, managing director, Wolfpack Wealth Management:
With the rise of fear and bank turmoil, we've been informing our clients about the protection offered by SIPC and FDIC.
SIPC (Securities Investor Protection Corp.) provides insurance protection to broker-dealer (custodian) customers if their custodian fails and cannot return the customer's securities or cash. This insurance coverage is limited to a maximum of $500,000 per customer, including up to $250,000 for cash.
On the other hand, FDIC (Federal Deposit Insurance Corp.) provides insurance protection to depositors if a bank fails. This insurance covers depositors' accounts, including checking and savings accounts, up to a maximum limit of $250,000 per depositor per insured bank.
We've emphasized that while these government-backed organizations provide a valuable safety net, they do not guarantee against loss, and it's essential to carefully consider the risk profile of different financial products and institutions before investing.
2. Avoid Keeping Too Much Money in One Place
Eric Roberge, founder and CEO, Beyond Your Hammock:
We urge clients to know and respect the limits that the FDIC will cover when it comes to bank balances. We will assign an action item to move cash to a new location if there is an account with a balance over $250,000 per depositor, or $500,000 per account for joint accounts. Last week, we also did a sweep of client portals in eMoney to identify any balances over FDIC limits. We contacted clients who showed cash accounts over the FDIC limit with reminders to move extra cash to ensure that money is protected.
We're also reminding clients that SVB had a very high level of loans plus securities as deposits, and a very low amount of retail deposits as a percentage of total deposits. The issues that caused Silicon Valley Bank to collapse do not appear systemic. For those spooked by stock market movements, we explain there's a difference between short-term market volatility and the actual health of the bank. The two can be correlated, but that doesn't mean they are always related.
3. The SEC Requires Protection for Securities Investors
Zack Swad, president and wealth manager, Swad Wealth Management:
For brokerage accounts, many people are unaware of the SEC's Customer Protection Rule. This rule legally requires broker-dealers to safeguard investments by segregating clients' fully paid-for securities, e.g. stocks and bonds, from the broker-dealer.
This means that in the unlikely event of insolvency, those segregated assets aren't available to general creditors and are protected against creditors' claims.
If a brokerage firm fails financially and assets are missing, there is coverage through SIPC, and some brokerage firms buy additional insurance through companies like Lloyd's of London.
For the vast majority of people, these coverages are more than enough to feel secure.
