The recent bank failure announcements from Silicon Valley Bank (SVB) have raised security questions concerning FDIC deposit insurance. Attached is an article about deposit insurance and other types of insurance for banking and credit union accounts.
Additionally, we provide a summary of the Silicon Valley Bank failure. Silicon Valley Bank serviced clients with an industry-focused customer base. Most deposits were for technology companies operating in the venture capital markets. Depositors with large operating cash balances held at the bank started to withdraw funds over concerns that losses on the bank's bond portfolio would have a detrimental impact and prevent them from being able to withdraw their funds, which started a chain reaction causing the bank to sell its bond portfolio to cover the withdrawals. Ultimately, the FDIC stepped in to make depositors whole, thereby liquidating the bank assets. FDIC covers deposits at financial institutions up to $250,000 per bank and covers checking, savings, and CDs. With the events at SVB last week, the FDIC is now covering deposits of any size. Although a temporary stopgap, it assures the public that their funds are safe. It is concerning when you read about bank failures; however, these are isolated situations that do not apply to most banks. This situation differs from what was experienced by the financial system in 2008 & 2009 because it is localized with two institutions and is not a systemic credit and liquidity issue. Banks are well-capitalized and in a healthy position to honor clients' withdrawals and general banking requirements.
Government Money Market funds are in healthy financial positions. Although the FDIC does not insure money market funds, Northern Trust-managed funds, which we use in our client portfolios, have maintained their Net Asset Value of $1 per share with ample liquidity. We hope you take comfort in knowing we are monitoring this situation closely.
