Broker Check

Bank Uncertainty

| March 16, 2023

Events over the past few days have some investors nervous. But, of course, bank runs tend to do that.They are, after all, built on fear of fear itself. So news of the rapid demise of Silicon Valley Bank (SVB) and Signature Bank has rattled markets.

Even the healthiest banks do not keep enough cash on hand to repay all customers immediately if they demand their deposits all at once. Bank runs are insidious because they can become self‐fulfilling. Fueled by fear, people begin taking out their bank deposits. As word gets out, fear may turn to full‐blown panic as the remaining depositors rush to do the same before they are too late and the bank cannot meet their immediate demands.

When a bank fails, depositors are made whole by the FDIC insurance fund. Traditionally, the insurance only covers deposits up to $250,000, but a "systemic risk exception" allows FDIC to use the Deposit Insurance Fund to ensure that even those with more than $250,000 don't lose any of their deposits. On Sunday, Federal regulators — the Fed, Treasury Department, and other agencies — announced that all customers of both SVB and Signature would have access to their money today. On Monday morning, in Britain, it was announced that HSBC is taking over the British arm of SVB.

While the depositors will be made whole, the equity and bondholders of the banks are not. These are the risks of investing and why broad‐based diversification is so important.

For investors worried about the safety of their assets, their investments at major custodians are held separately and not comingled with assets of any affiliated Bank.

These types of events spawn volatile markets, and we should expect to see that. However, it should not cause long‐term investors to panic or lose sight of their goals. These types of events happen, and markets are quick to incorporate them and move on. If you’ll recall, the S&P 500 lost nearly half its value during the global financial crisis in 2008 but fully recovered within two years, then went on a historic decade‐long run.

As always, we are here for you — to offer guidance, answer questions, and calm fears (as best we can). Please feel free to contact us at any time.



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

The Federal Deposit Insurance Corporation (FDIC) protects deposits of up to $250,000 per depositor, per insured bank, for each account ownership category. FDIC covers most, but not all, U.S. banks and savings associations in the event that the institution becomes insolvent. FDIC does not cover securities, mutual funds, or similar types of investments. For more information about FDIC insurance, visit