Banking crisis??

[cbo111]

So I'm seeing articles about billions of dollars getting withdrawn for our nations banks. Since most banks are FDIC insured, any losses would be covered up to $250K, is it a fair assumption that this cash is being withdrawn by wealthy folks with quite a bit more than $250K in their accounts. And they don't want to lose it. My question is what scary stuff do they see (non political please) that I don't? I feel no inclination to withdraw funds just to hold them at home for some undefined future.

 

[JDARNELL]

I think a lot of it is people moving cash to money markets and getting more yield. At least part of it is this way.

 

[Car-Guy]

I guess you'd have to define wealthy... Anyone with just a few million can easily have it all protected by FDIC insurance. Heck it wouldn't be hard to do even with 10 million. Now if you are talking about 10's or 100's of millions, I'm sure they have ways to protect their money that us common folks don't.

 

[Gumby]

From what I read, bank borrowing from the Fed's discount window is down over the past week, which means the pressure from depositors withdrawing the cash is actually abating. In any event, I wouldn't assume people know anything special; they are just easily spooked sheep sometimes.

 

[jazz4cash]

I guess you'd have to define wealthy... Anyone with just a few million can easily have it all protected by FDIC insurance. Heck it wouldn't be hard to do even with 10 million. Now if you are talking about 10's or 100's of millions, I'm sure they have ways to protect their money that us common folks don't.

Please explain. I know some places distribute deposits to a network of FDIC banks to satisfy coverage limits. Is that it? Using simpler techniques like joint registrations would get pretty tedious w/ 10 mil.

 

[lawman]

My question is in the event of widespread bank failures how many accounts can be paid? How much money does FDIC have access to?

 

[Car-Guy]

Please explain. I know some places distribute deposits to a network of FDIC banks to satisfy coverage limits. Is that it? Using simpler techniques like joint registrations would get pretty tedious w/ 10 mil.

Simply use a broker (Schwab/Fidelity, etc) and buy a bunch of CD's (~250k each) from different banks.

 

[USGrant1962]

I think a lot of it is people moving cash to money markets and getting more yield. At least part of it is this way.

+1

I've read of massive movement (back) to MM funds. While the banks don't like it, that is not SVB / bank-run type stuff.

 

[Car-Guy]

My question is in the event of widespread bank failures how many accounts can be paid? How much money does FDIC have access to?

If that were to happen it's probably time to head to the bunker.

 

[lawman]

If that were to happen it's probably time to head to the bunker.

You may be right but some people a lot smarter than I are predicting that before this bank crisis is over we will be left with only 6 large banks.

However, I don't know if this is true or not but I did find this..


https://www.investopedia.com/terms/...eserve fund has,backed by the Federal Reserve.
"The FDIC reserve fund has never been fully funded; in fact, the FDIC is normally short of its total insurance exposure by more than 99%. Congress granted the FDIC the power to borrow up to $500 billion from the Department of the Treasury, making the system effectively backed by the Federal Reserve. In other words, if the FDIC exhausts its other options, the government will step in to provide further financial backing."

 

[luckydude]

+1

I've read of massive movement (back) to MM funds. While the banks don't like it, that is not SVB / bank-run type stuff.

+1

I moved $50k to MM from my bank account this week for better yield. Not worried about the (in)stability of the banking system at all.

 

[RxMan]

My question is in the event of widespread bank failures how many accounts can be paid? How much money does FDIC have access to?

Is this a joke? Widespread banking failures? How would that be possible?

If it’s a smaller bank they’ll be bought out/have their assets transferred to whichever larger bank swallows them up. The big boys can be as reckless as a gambling addict on vacation in Vegas because big government will bail them out if they bet wrong. There’s little to no disincentive to swing for the fences with any aggressive strategy to make more money. Heck Buffett will even bail you out of a jam….for a price.

There’s only a few guarantees in life and none of them involve the FDIC. If you want a guarantee keep your cash under your mattress while it’s still possible to store physical money.

Money moves around for lots of reasons. People might be preparing for hard financial times going forward. Who knows? But widespread banking failures? No, I don’t think so.

If 9/11, the dot com bubble, the housing bubble, or the pandemic didn’t cause widespread bank failures what would do it? Expect future bubbles to burst in what can be inefficient and/or manipulated financial markets going forward but I would not expect widespread banking failures. It will come down to the same old cry for help: we can’t fail- bail us out.

 

[swakyaby]

+1



I moved $50k to MM from my bank account this week for better yield. Not worried about the (in)stability of the banking system at all.

I too am in the process of linking all my autopays and investment firms to my newly opened Fidelity CMA with a money market as an overdraft sweep account. Seeing $50K sitting at a Wells Fargo checking account earning 0.05% interest is annoying me. So I will be part of the mass exodus.

 

[frayne]

I think a lot of it is people moving cash to money markets and getting more yield. At least part of it is this way.

Exactly, the crowd is going after higher returns in CDs, money market accounts, etc. Don't know why this is surprising and to some degree not anticipated by those in the know. On the other hand the news media likes to make it sound like the sky is falling almost every single day.

 

[FLSUnFIRE]

Economics Explained YT channel did a pretty good short summary video of what happened. (my favorite pop-econ channel) As you already said, it was those with well over $250K. As with most bank runs, it is a liquidity issue. The banks did a poor job managing maturities of assets with liabilities and were long on bonds that lost face value as interest rates rose (dropping their value) and were force to sell at losses to meet liquidity needs as the run began. With online banking this happened much faster than it would have in the old days. Unfortunately, bailing out beyond the FDIC limits sort of encourages more recklessness by banks but not doing so encourages more bank runs by nervous depositors. It's a bit of a balancing act.

 

[Markola]

Exactly, the crowd is going after higher returns in CDs, money market accounts, etc. Don't know why this is surprising and to some degree not anticipated by those in the know. On the other hand the news media likes to make it sound like the sky is falling almost every single day.

Broke financial reporters probably misunderstand what’s happening.

 

[target2019]

My question is in the event of widespread bank failures how many accounts can be paid? How much money does FDIC have access to?

1. All accounts can be paid. Have faith in the banking system.

2. If something different happens, we'll be in our bunkers while violence and mayhem occurs in the streets. Communication may collapse, and so on.

I prefer #1 outcome. So I believe.

 

[marko]

You may be right but some people a lot smarter than I are predicting that before this bank crisis is over we will be left with only 6 large banks.
."

As far as I'm concerned, the "banking crisis" was over before it began. Two or three bank failures nationwide during these times does not a crisis make.

Three or four weeks ago, sure, there was cause for worry, but now.......?

 

[pb4uski]

^^^ Yup. My observation is that recently there have seemed to be a many tin-foil hat forum members whose glass is half-empty and think the sky is falling... very strange paranoia IMO.

 

[pb4uski]

You may be right but some people a lot smarter than I are predicting that before this bank crisis is over we will be left with only 6 large banks.

However, I don't know if this is true or not but I did find this..


https://www.investopedia.com/terms/...eserve fund has,backed by the Federal Reserve.
"The FDIC reserve fund has never been fully funded; in fact, the FDIC is normally short of its total insurance exposure by more than 99%. Congress granted the FDIC the power to borrow up to $500 billion from the Department of the Treasury, making the system effectively backed by the Federal Reserve. In other words, if the FDIC exhausts its other options, the government will step in to provide further financial backing."

There may well be some people predicting that before the crisis is over we will be left with only 6 large banks... that's the beauty of the first amendment... anybody can have an opinion.

The quote on FDIC funding is incomplete. It probably is true that the FDIC's net assets are less than 1% of insured deposits.... BUT that fails to consider that each bank has assets backing those deposits and shareholder equity backing those deposits so in order for the FDIC to pay a dime even to begin with then the liquidation of the bank's total assets would have to be less than its FDIC insured deposits... very unlikely... and even if that were to happen, then the FDIC would step in to cover the deficiency, first from its own assets and then from the $500 billion line of credit from the U.S. Treasury.

While you did find the quote above, you obviously didn't bother to read to the end:

... An FDIC insured account offers the peace of mind that your deposited funds will be safe should the worst happen to your bank of choice.

 

[Car-Guy]

As far as I'm concerned, the "banking crisis" was over before it began. Two or three bank failures nationwide during these times does not a crisis make.

Three or four weeks ago, sure, there was cause for worry, but now.......?

I'm not an expert in "banking" (far from it) but my guess is there are a number of other banks that are probably at, near or past failure. I suspect the banking regulators have applied financial bandages/tourniquets to save them before the problem spreads or the system collapses. We may never know, but it "seems" to be working. For now...

"If that's true", it's probably best (in this case) that they kept it is as quiet as they did to avoid contagion panic. A few more months of stability and I'll breathe easier.

Now I can get back to worrying about the upcoming debt ceiling/crisis.

 

[MarieIG]

+1

I moved $50k to MM from my bank account this week for better yield. Not worried about the (in)stability of the banking system at all.

I have lowered bank account balances over the past months due to the non-existent yield in the banks, and the higher yield of short term treasuries. I also discovered the Fidelity FDIC insured cash management account . . .

 

[HF63]

If a bank can only survive if it pays its customers close to 0 interest, does it actually have a business model that works.

 

[pb4uski]

^^^ Totally false premise. Just because a bank is pay low interest on demand deposits doesn't mean that its business model doesn't work. If you were running a for-profit bank and had a boatload of sticky deposits, why would you pay any more interest than you need to to retain those deposits?

 

[HF63]

^^^ Totally false premise. Just because a bank is pay low interest on demand deposits doesn't mean that its business model doesn't work. If you were running a for-profit bank and had a boatload of sticky deposits, why would you pay any more interest than you need to to retain those deposits?

Does why lots of folks are transferring their money where it gets a better return.


We seem to be on 4-5% world at this moment.