Government leaders and federal banking regulators urge Americans not to panic after the collapse of two U.S. banks, assuring them their deposits are safe, covered by the FDIC up to $250,000 per account. In general, that covers checking and savings accounts or Certificates of Deposit. The ready cash you have in your bank.
Mark Koppelmann, a certified financial planner with FinancialConnex, said the fear has not risen to the level seen during the economic crisis of 2008. For the most part, markets have absorbed the news while continuing to function normally.
“That being said, my personal opinion on that is, that’s past tense. You’ve got to think about what’s going to happen in front of us. And I think, that’s the bigger issue. Because what we were seeing last week may be different this week,” he said.
What started the 10-day chain reaction of doubt was the collapse of Silicon Valley’s Bank (SVB), then the shutdown of Signature Bank, followed by a bailout of First Republic Bank. Meanwhile, in Switzerland, Credit Suisse was teetering on the brink of failure which ended with a buyout by the country’s largest bank, USB.
Koppelmann said there is some protection or “insurance” that protects your money.
“Whether it’s a Merrill Lynch, any of the brokerage firms that you’re talking about, they don’t have FDIC insurance, per se, but what they do have is what’s called Securities Investor Protection Corporation (SIPC). So, when you have a brokerage account, you do have insurance, it’s just handled on a different structure, and it goes up to $500,000,” Koppelmann explained.
Kopplemann said it is important to know what you have in your retirement accounts. For example, if you have primarily stocks, that would be covered under SIPC, while an account that is CD-heavy would fall under FDIC.
The investors most likely to be hurt in the short term are the small investors, those with accounts under $250,000. The problem can be if those investors need cash. Although their accounts have protection, Kopplemann said it can take time to go through the FDIC or SIPC process.
He said that is why it is wise to talk with a financial advisor, no matter the size of the account.
“It’s really helpful when people talk to somebody with expertise so that they can speak with them specifically about their household and then implement those easy strategies to meet their needs. I can tell you, after being in the business for as long as I’ve been, it’s always been a psychological hang-up, a hurdle. If I don’t have a certain amount of money, then I shouldn’t be talking to the advisor. And that’s not the case, everybody should be.”
Koppleman believes some of the fears stem from what people experienced in the 2008 collapse, with even major investment firms collapsing. Another factor is age. Someone who suffered a loss in 2008 may have been younger, with more time to allow their account to recover. Today, that same person is nearing retirement age and doesn’t have that luxury of time.
But he said it is not the same situation as the economic crisis we experienced in 2008.
“There really won’t be a problem, unless people start panicking. Don’t allow news and information to make you psychologically scared. This will kind of work itself out. But people get very frightened, and they start asking for their money. That’s what causes the problem of liquidity issues,” he said.
In the meantime, Koppleman recommends talking with someone you trust, and consider beginning a relationship with a financial planner.