![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
canyonwalker"How Much Should You Worry About Bank Failure?" reads a typical news headline I've seen over a dozen slight variations of in the past 24 hours. These are part of a predictable news cycle after the sudden collapse of Silicon Valley Bank late last week. As usual for articles about finance in the general media, writers get it wrong. Curiously in this case they manage to both over- and under-report what the risk to the average person is.
Generally speaking, your savings are safe. The FDIC insures bank accounts for up to $250,000. This organization was created in 1933 after the widespread bank failures of the Great Depression wiped out millions of ordinary Americans' life savings. There's emphasis on ordinary. In 1933 the covered amount was only $2,500. It has been increased over time. The last increase was in late 2008, during the Global Financial Crisis, when it was raised from $100k to $250k.
"What if I've got more than $250k?" you might wonder. Well, first, congratulations! Most people don't have that much. Second, it depends on what form your money is in and where you keep it. This coverage does not protect investments; it protects cash accounts, like your checking account and savings account. The cool thing is the limit is per account, so if you have more than $250k you can split it across multiple accounts, each with a balance below that threshold, and protect it all.
For example, in my family we have 7 FDIC insured accounts. We could protect up to $1.75 million in them. We have way less cash than that, though. We don't even have $250k between all of them. We have those different accounts because they're titled differently (some in my name, some in my spouse's, some joint) and because they offer different benefits (unlimited check writing vs. high interest). But if we had $1.75 million to protect, we could do it with those seven accounts.
There's a practical limit to how far you can divide a huge amount of wealth to protect it in $250k envelopes. If you have $25 million cash, you'd need 100 accounts to protect it all. That's not feasible. But that's also the point. FDIC insurance is to protect ordinary Americans, not the One Percent.
Now, while having $25 million in checking is an enormous amount for an individual it is not that much for a business. And that's where this category of news articles understates the risk to ordinary Americans. While your savings are safe, your employer's are not.
That was especially the case with Silicon Valley Bank, which served primarily corporate accounts. Dozens, even hundreds, of business could have lost most of their money— money they use for things like payroll.
Yes, those businesses were also protected up to $250k per account, but $250k doesn't go as far in business as in kitchen-table economics. For example, my company— which has/had its payroll accounts at SVB— has about 350 US employees. At next payroll, that $250k from the FDIC means there's only $714 to pay each employee... and then the company is broke.
That's why the federal government stepped up and covered the full amount of accounts at SVB. Because if suddenly lots of people are losing their jobs because their companies suddenly lose 99% of their assets, it's an economic catastrophe.
Generally speaking, your savings are safe. The FDIC insures bank accounts for up to $250,000. This organization was created in 1933 after the widespread bank failures of the Great Depression wiped out millions of ordinary Americans' life savings. There's emphasis on ordinary. In 1933 the covered amount was only $2,500. It has been increased over time. The last increase was in late 2008, during the Global Financial Crisis, when it was raised from $100k to $250k.
"What if I've got more than $250k?" you might wonder. Well, first, congratulations! Most people don't have that much. Second, it depends on what form your money is in and where you keep it. This coverage does not protect investments; it protects cash accounts, like your checking account and savings account. The cool thing is the limit is per account, so if you have more than $250k you can split it across multiple accounts, each with a balance below that threshold, and protect it all.
For example, in my family we have 7 FDIC insured accounts. We could protect up to $1.75 million in them. We have way less cash than that, though. We don't even have $250k between all of them. We have those different accounts because they're titled differently (some in my name, some in my spouse's, some joint) and because they offer different benefits (unlimited check writing vs. high interest). But if we had $1.75 million to protect, we could do it with those seven accounts.
There's a practical limit to how far you can divide a huge amount of wealth to protect it in $250k envelopes. If you have $25 million cash, you'd need 100 accounts to protect it all. That's not feasible. But that's also the point. FDIC insurance is to protect ordinary Americans, not the One Percent.
Now, while having $25 million in checking is an enormous amount for an individual it is not that much for a business. And that's where this category of news articles understates the risk to ordinary Americans. While your savings are safe, your employer's are not.
That was especially the case with Silicon Valley Bank, which served primarily corporate accounts. Dozens, even hundreds, of business could have lost most of their money— money they use for things like payroll.
Yes, those businesses were also protected up to $250k per account, but $250k doesn't go as far in business as in kitchen-table economics. For example, my company— which has/had its payroll accounts at SVB— has about 350 US employees. At next payroll, that $250k from the FDIC means there's only $714 to pay each employee... and then the company is broke.
That's why the federal government stepped up and covered the full amount of accounts at SVB. Because if suddenly lots of people are losing their jobs because their companies suddenly lose 99% of their assets, it's an economic catastrophe.
