Posted by The latest news about FDIC takeover of Silicon Valley Bank is only going to get worse. It occurred to me a few months ago, as I was transferring money out of my local bank checking account and into a treasury fund, that if enough people started doing this, banks would be in trouble. Part of the problem is that banks are extremely slow at raising interest rates on savings and checking accounts. Even after nine interest rate hikes in the past year, banks are still only paying a fraction of a percent in interest. So, why would anyone leave more than a few thousand dollars in a bank account? Maybe some people are ultra conservative and would rather leave their money in a bank that is FDIC insured. I don’t know, but the higher interest rates climb the more people will be taking money out of banks and moving it to investment accounts.
It is still unclear how many businesses are affected by the collapse of SVB. The ones that have come out with statements so far are well known tech companies. But it is only the tip of the iceberg. I’m sure we will hear more in the weeks to come. It would be almost impossible for a growing business to spread their funds across enough banks to be 100% FDIC insured. Some investment firms do this automatically. The money goes into an account and is distributed to numerous banks in the background. You can see how much you have in each bank and each one pays monthly interest. You can even request to have a bank excluded if you like. This way, you are FDIC insured even if you have millions of dollars in your account. It’s a nice feature, but something that most working people don’t have to worry about.