In this special edition Market Perspective, we discuss the recent failure of Silicon Valley Bank and the measures being taken to restore confidence in the banking system.

Banks and Brokerages

Banks offer checking and savings accounts and loans for autos, businesses, and home mortgages, while brokerages custody securities like stock and bond portfolios and provide access to trade in capital markets.

Charles Schwab provides both banking and brokerage services, and in their recent press release, they affirmed that investments at Schwab are held in investors' names at the Broker-Dealer, separate and not comingled with assets at Schwab's Bank.

The Backstop

For banks, the FDIC insures up to $250,000 for each depositor, per insured bank, and for each account ownership category. On the brokerage side, the Securities Investors Protection Corporation (SIPC) covers $500,000, and at Schwab, a supplemental policy protects account holders with coverage north of $150 million per account, with aggregate limits.

Silicon Valley Bank

The recent failure of Silicon Valley Bank, ranked the 16th largest bank in the country by asset size, was due to a timing mismatch between bank assets and liabilities. Investments held by the bank declined in market value over the past year due to rising interest rates. The bank also worked with many venture capitalists and tech startups, leading to a concentration in the depositor base and industry-specific challenges. Less than 20% of Silicon Valley Bank's deposits were under the FDIC insurance limit, leaving a majority of deposits not covered by the FDIC.

Withdrawal Demand Plan

Over the weekend, the Federal Reserve, the US Treasury, and the President of the FDIC met and agreed on a plan to help restore confidence in the banking industry. The plan includes quickly making bank depositors whole, including amounts above the FDIC insurance limit, and allowing banks to access additional money to meet withdrawal demands.

We will continue to monitor the situation and keep you updated.

Additional information:
(External Links)

Schwab’s statement on March 13, 2023

Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC

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