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Bank Failures: Basic Protections for Consumers and Businesses

The recent collapse of Silicon Valley Bank in March 2023 was one of the largest bank failures in the United States since the 2008 financial crisis. Unsurprisingly, the scale and high visibility of the failure raised wide-spread concerns about the health of other banks, particularly those heavily involved with the technology sector.

The Federal Reserve has taken steps to try and prevent a wider banking crisis by providing billions of dollars in loans to banks and pledging to do whatever it takes to keep the financial system stable.

How can you protect your personal or business accounts?

While it’s still too early to say whether the failure of Silicon Valley Bank will have a significant impact on other banks, there are things that consumers and businesses can do to protect themselves.

Keep your money in FDIC-insured accounts. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor per bank. This means that if a bank fails, you will not lose more than $250,000 of your money. This also means that a married couple with a joint account is insured up to $500,000.
Spread your money around. Just like the phrase “don’t keep all of your eggs in one basket,” don’t keep all of your accounts at one bank. Instead, diversify your accounts among different banks.
Consider opening a higher-yield account. Depending on your risk tolerance, you may look into opening a higher-yield account. These often have withdrawal limits, so analyze your situation and how quickly you might need to have access to your account.
Have a backup plan. If your bank fails, you will need to have a way to access your money. This could include having a checking account at another bank, a credit card, or a line of credit.
Stay informed. Keep up with the news, and be aware of any potential problems at your bank. If you see any red flags, such as a sudden decline in the bank’s stock price or a run on deposits, you may want to consider moving that account to another bank.

What if the $250,000 cap doesn’t cover your deposits?

As mentioned above, one option is to divide your money between multiple banks. For deposits that greatly exceed the $250,000 cap, you may consider a bank that’s part of the IntraFi network. Essentially, this network of banks utilize Insured Cash Sweep (ICS) service and Certificate of Deposit Account Registry Service (CDARS) to divide your deposits among multiple financial institutions under the standard FDIC insurance maximum. Funds can be placed into demand deposit accounts, money markets or CDs.

What should I do if my bank fails?

Remember that bank failures rarely occur, but if the worst scenario should happen, there are a few things you can do.

First, get all the information.
If a bank fails, all accounts are immediately frozen. The FDIC will assume control of the bank operations and work to restore access to frozen accounts (up to the $250,000 insurance amount) through what’s called a “bridge bank.”

Assess the impact.
While the FDIC works on the situation, business owners should assess how much of their funds are in limbo, and how that will affect business operations.

Get the timeline.
The FDIC will provide a time frame for the process and when funds will be available. If you have a loan or line of credit at the bank, continue to make payments as usual as the FDIC bridge bank will be overseeing those accounts.

Communicate with clients and employees.
If payroll or other vendor payments will be impacted by the bank failure, communicate as soon as possible about delays and disruptions.

Open a new business banking account.
If all of your funds were with the one bank, it’s time to open a new account. You can usually set one up online within minutes. But keep in mind that ACH transfers and mobile check deposits can sometimes take a few days to post.

Hackstaff, Snow, Atkinson & Griess attorneys are here to help with your business matters.

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