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The TLDR on SVB and what it means for you

Last week, SVB (Silicon Valley Bank) was taken over and ultimately shut down by the Fed and the baking regulators in California after a bank run by it’s clientele. This announcement sent shockwaves through the banking industry and left many in a panic, asking questions like “is this 2008 all over again?” and about the safety of their bank accounts.

To demystify WTF happened, host Tori Dunlap hopped on the mic for a quick hit episode explaining the news in layman’s terms and talking about bank security and why, at this point, you don’t need to panic.

Why did this happen?

To understand what happened with SVB, you need to understand how banks work and make their money. When you deposit money into a bank through an account, a bank then takes that money and either a) invests it in lower-risk securities like bonds or 2) loans it out to others and makes money on the interest. This means that your money isn’t sitting in a proverbial mattress inside a bank. It’s in circulation.

SVB saw a huge growth in funding of accounts between 2018-2020 with the intense growth of VC-funded start-ups and tech companies. These companies put their funds in SVB, and SVB then invested those funds in bonds. You might be asking, “wait, aren’t bonds safe and low-risk?” –– and normally, yes! But bonds, like the stock market, are subject to the ebb and flow. When the Fed raised interest rates to combat inflation, the bonds market dipped.

Most of these bonds were 10-year bonds –– meaning that their “maturation” would be 10 years from the date that they were procured. In the meantime, the price of the bond can rise and dip like the market, and only after maturation can you guarantee that you’ll get the full amount of your bond purchase.

The dominoes and how they fell

Normally, the fluctuation in a banks portfolio is NBD, but there were other factors for SVB to contend with:

1. SVB is predominantly used by tech companies and start-ups. And these industries have been going through financial troubles and layoffs already, which means they needed access to their cash to make payroll and keep the lights on.

2. The rising interest rates have driven the value of bonds down, meaning that SVB’s portfolio was lower than what they needed on hand, which caused a liquidity crisis.

3. Fund managers learned about the crisis and started mass-transferring funds to other banks. Funds that SVB didn’t have the cash on hand for or the bond value to back up.

This led to the liquidity crisis and the Fed jumping in to make sure that consumers were protected. SVB’s accounts were FDIC insured, which means that up to $250,000 is protected and backed by the FDIC. The problem was many of these companies had millions, and even billions, invested in SVB with no idea when or if they’d see this money again.

Will the companies get their money back?

Over the weekend, many speculated that the Fed would bail out these companies and make sure they received all of their money, not just up to the $250K limit. And that’s exactly what happened. Here’s a portion of the statement:

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

In the case of SVB, the Fed decided to make sure that ALL funds were given back to the companies.

What does this whole situation mean for me?

Unless you worked for a company that had money in SVB, the good news is that this likely will not affect you much at all. If your company was affected by SVB, they should be receiving all funds by Monday, March 13th. Talk to your leaders at your company if you’re concerned about how this might affect payroll.

How can I be better prepared for bank failures?

This whole situation is an excellent reminder of why banking with a bank that has FDIC-insured accounts is so incredibly important. FDIC insurance will guarantee that even if a bank folds, you’ll receive up to $250,000 of your money back.

Here’s a great resource on FDIC insurance!

If you have more than $250,000 in any one bank, you might consider opening an account at a second institution to make sure your money is fully insured!

Here’s another quick explainer on FDIC insurance:

And as always, keep working toward your financial basics like having 3 months of savings in an (FDIC insured!!!) high yield savings account, investing for retirement, and spending according to your values.

If you have questions about the SVB shutdown or are feeling worried, reach out to us and leave us a voicemail –– we’d love to hear from you!

Where to read more:

FDIC resources for affected accounts

Silicon Valley Bank collapse: Treasury, Fed and FDIC announce steps to ensure deposits will be paid in full

Timeline: The Collapse of Silicon Valley Bank

MorningBrew: So Long Silicon Valley

MorningBrew Explainer TikTok

Episode 5: Where Do I Start (aka the Financial Game Plan)

Resources:

Feeling Overwhelmed? Start here!

Our HYSA Partner Recommendation (terms apply)

Order Financial Feminist Book

Become an investor and join our Investing Community, Treasury, with Investing 101

Behind the Scenes and Extended Clips on Youtube

Leave Financial Feminist a Voicemail

Financial Feminist on Instagram

Her First $100K on Instagram

Take our FREE Money Personality Quiz

Join the Mailing List

Transcript:

[00:00:00] Tori Dunlap: .If you would’ve told me six years ago that I host a podcast where I’d have to come on and explain to everybody what a bank failure means and how it works, I would’ve laughed in your goddamn face. We can keep that. Hello everybody. Let’s talk about a bank closure. Sounds fun, doesn’t it? Okay. We are gonna make a quick and dirty episode today because, uh, you have a lot of questions, as do I, as do everybody else, which.

[00:00:30] Is my money safe Banks are closing. Is this 2008 all over again? What happens to my money if my bank closes, et cetera, et cetera. So first, let’s talk about what happened. This is the part that I’m gonna be honest with you still kind of confuses me because it’s a little murky. We spent, uh, a couple hours this morning researching.

[00:00:51] I was online all weekend watching a lot of videos. So let’s explain this in as simple words as we. So what happened? Silicon Valley Bank SVB was shut down on Thursday, March 9th. Things are happening all the time. We’re getting updates, literally like moment to moment.

[00:01:09] But here’s what we know so far as of our recording at 9:00 AM Pacific Time on March 13th. So first, how banks work. Banks work by selling and investing lower risk. Things like. and then loaning money. With the interest. Banks have to make money in some way in order to stay alive, right? Just like any business does.

[00:01:32] And so when they take your money, . It doesn’t just go like in their metaphorical mattress, right? Or the bank’s backyard under buried under some dirt. They take the money and they sell it. They, they invest it into these lower risk options like bonds. This. Most of the time because not everyone needs their money right away.

[00:01:58] Right. And there’s enough circulation to go around. It’s kind of like a library, right? It’s, it’s like you have certain books in circulation and not everybody, in theory is going to the library and taking all the books out at once. But that’s exactly what happened, . So with interest rates, rising bonds have gone down in value.

[00:02:19] These are the things that the bank was invested in and the timing of too much money being withdrawn, coupled with the loss of value in the bonds meant that Silicon Valley Bank did not have the liquid funds to actually give people back their money. , it went into what is called a bank run. Basically when a bunch of members of the bank pull all their funds at once, usually out of fear that the bank is going under, and then that just makes it worse, right?

[00:02:52] So why Silicon Valley Bank in particular? Well, Silicon Valley Bank, as you might gander from the name Silicon Valley, is a favorite amongst startups and business. . So in early 20 18, 2 early 2020 startups saw a record number of investing transactions, cash flow, which as a result of the pandemic, and the layoffs began to slow.

[00:03:17] So they needed to pull more money from the bank. The bank then invested in securities like bonds, which have taken a loss, meaning they were not worth what they bought them for. Origin. This is totally normal, right? But because SVB was very lodged into one industry, which is startups and technology, when this industry shift happened, it caused a huge ripple.

[00:03:40] They weren’t diversified in their clientele, so this cumulated in more requests for withdrawals, and then once the first domino fell, right, the rumor started spreading that the bank had a crisis. Companies would panic, they would withdraw their funds from the bank, which caused the bank run that ultimately led to the shutdown by the Federal Reserve slash the California Bank regulators.

[00:04:03] So what did this actually mean for people? Well, I, as a business owner, was seeing fellow business owners, a lot of women, people of color, queer folks who own businesses absolutely panicked because their money was in s Phoebe. So it wasn’t, I think it’s easy when this sort of thing happens that if it doesn’t happen to you or somebody, you know, you’re just kind of like, oh, well this is like freaking me out, but like, I’m fine.

[00:04:32] This was like a, a real issue for many, many startups and businesses because they did not know if they were getting their money back. They had no idea what the state of the bank was going to be. So this weekend we heard from the Federal Reserve that they were not only going to protect depositors that were insured, but all depositors with any.

[00:05:01] Amount of money and that depositors would have access to all of their money starting Monday, February 13th, and that no loss is associated with the resolution of Silicon Valley Bank would be at a cost to the taxpayer. Now we’re still trying to figure out, well, who gonna pay for that ? Who’s gonna pay for it?

[00:05:24] We don’t know yet. Right? But the good news is a couple things. If you were a member of Silicon Valley Bank, you are not just insured up to the standard F D I C insurance, which is $250,000. Most banks, and I would say any bank worth banking with is F D I C insured, which means if you put your money in to this bank and it’s F D I C insured, you are insured up to 250,000.

[00:05:53] So if the bank were to go under, if something were to happen, you will get your money back. But of course there were plenty of people who were running businesses where they have more than $250,000 in their bank account. So that was the like, worry is one, do I get my money back? Period? But two, if I have, uh, $300,000, am I only getting 250,000?

[00:06:17] The Fed has responded and said that depositors will have access to all of their money.

[00:06:23] And that insured and uninsured money will be paid in full. So the question you might now be asking, knowing what happened, is our bank safe? Is my money safe? One Most likely, yes. I would just normally give you a yes. However, I can’t, you know, thi
s is, this is not a hundred percent guaranteed. It is a hundred percent guaranteed if it’s up to $250,000 and it’s F D I seed insured, right?

[00:06:55] The banks that we recommend that we work with, the ones that we talk about all the time. We do not recommend something that isn’t F D I C insured. Always check with your specific financial institu. I would, I would gander a bet that the vast majority of you listening, if your money isn’t a bank, it’s F D I C insured.

[00:07:16] Okay? What happens beyond that amount of money? What if I have more than $250,000 in the bank? I literally have a, uh, two hour block on my calendar today to go through both my personal finances and her first hundred K’s finances to make. That we don’t have over $250,000 in every bank account because when you run a business, you keep reserves, right?

[00:07:42] We have more than $250,000 in the bank to make sure that we can pay our people to make sure our cashflow is good. And so what I’m going to do is take the money and move it towards a variety of different bank accounts. What is the likelihood of my bank failing? Well, if it’s a large institution, not very. Not very likely. And again, if your funds are under $250,000, you’re protected.

[00:08:29] What does this mean for the stock market? Should I sell my investments? We have talked about this many, uh, many a time. We will link more resources around stock markets, volatility, riding out the wave, but the stock market is here for a, uh, long time, not a good time. it’s the exact opposite, right? It’s here for a long time, not a good time.

[00:08:49] So when we put money in the stock market, We are expecting to hang out there for years, if not decades, so we will likely see some stock market volatility over this. People are concerned that it’s 2008 all over again. This is the largest bank closure since like 2010, but it’s also. Super important that we as individuals and thus larger consumers, do not contribute to the panic and the dominoes falling both for the health of the economy, but also for our own financial health.

[00:09:28] We are investing for the long term, right? We are investing even when there’s some spicy volatility. So TLDR is my money. Yes, up to $250,000. It is F d I seed insured. If you have more than $250,000, or even if you’re a bit concerned, move it to a variety of different bank accounts, even at different banks.

[00:09:53] Two, is this 2008 all over again? I don’t know. Nobody knows anybody who’s telling you they know is lying to you or selling you something. We honestly don’t know. Now, is a recession coming? Yeah. We’ve kind of been like one foot in one and one foot out of one for like a year. Now recessions are bound to happen, right?

[00:10:13] We don’t know if this is 2008 all over again, but there are certain things that we can do to protect ourselves. Like again, moving our money to a variety of different banks, making sure that bank’s F D I C insured, but also not panicking. This is a long time, not a good time. We’ll continue to get more information about SVB and their response.

[00:10:36] I know I am a huge listener of the New York Times podcast, the Daily, and uh, you will get this episode, I believe on Tuesday, and they’re also releasing an episode about SVB on Tuesday. Uh, morning Brew did a great, uh, analysis and fun video explaining all of this. So if you do want more information, if you are curious, we will link more resources down in the show notes. So we’re here for all of your questions. Feel free to leave us a voicemail if, uh, you are worried, know that it is totally normal.

[00:11:10] And finally, here at Financial Feminist, here at her first hundred K, we are all about getting our financial house in order no matter what’s going on. And during volatile times, especially where you might feel a little anxious, it is a great, great, uh, time to start.

[00:11:27] or continue your financial goals, which include putting together at least three months of living expenses in a high yield savings account for your emergency fund and making sure that high yield savings account is Ft i c insured. Making sure that we are diversifying our income if we can, and also making as much money in something like a nine to five as possible, which might include negotiating your salary.

[00:11:50] It includes being really honest about your financial habits and what you would like to change. It also includes celebrating your wins. . We have exclusive communities that are here to kind of calm you during times of economic volatility. We have our free Facebook community that will link below. We also have Treasury, which is our investing platform where we’re doing live coaching and back and forths, um, about news and financial topics.

[00:12:19] So if that’s of interest to you, we also have our book that covers literally everything, personal finance 1 0 1. So if you’re wondering what to. , don’t panic. Stay the course. Make sure your money’s protected, and find financial resources that can explain these things to you in a very digestible way that hopefully eases your anxiety.

[00:12:41] So couple of things that I’m going to be doing today. One, like I said before, I’m gonna be checking in on my money. I’m gonna be going to my banks. I’m gonna move some money around to make sure that myself and the business meets the insurance requirements.

[00:12:57] I’m also going to be checking in on my investments, not to withdraw the money, not to make any crazy changes, but just to see where I’m at because that’s helpful information for me, and I’m only going to be consuming media around these topics That is inform. and makes me feel good as opposed to panicked and scared, and.

[00:13:20] Confused . So we appreciate you being here. If this episode was helpful, please feel free to share it. We’re hoping to do more of these topical episodes as, uh, news comes up around money because I know that, uh, I am also looking for those resources, so why not create them for you? Thank you for being here.

[00:13:41] Again, don’t panic. Everything’s gonna be okay. We’re gonna figure it out and we’ll talk to you later. We also have like three episodes coming out this week, including this. So round back if you, if you wanna hang out here, this is for a long time as well as a good time. Catch you later. Financial Feminists.

[00:13:59] Thank you so much.