Financial Feminist - Are Banks Unsafe? What the SVB Shutdown Might Mean for You

Episode Date: March 13, 2023

WTF is happening with SVB? Are we heading into another 2008? Is it even safe to use a bank right now? In this pep-talk episode, host and financial educator Tori Dunlap is here to give you the TLDR on what’s happening with Silicon Valley Bank, what it might mean for you, and how to continue to make sure your money is protected.  Read more about SVB, get transcripts from the episode, and grab additional resources at www.financialfeministpodcast.com If you were affected by the shutdown, see resources from the FDIC: https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html Not sure where to start? Take our FREE money personality quiz! www.herfirst100k.com/quiz Learn more about your ad choices. Visit podcastchoices.com/adchoices

If you would have 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 have laughed at your goddamn face. We can keep that. Hello, everybody. Let's talk about a bank closure. Sounds fun, doesn't it? Okay, we are going to make a quick and dirty episode today because you have a lot of questions, as do I, as do everybody else, which is, is my money safe? Banks are closing. Is this 2008 all over again? What happens to my money if my bank closes? Etc, etc. So first, let's talk about what happened. This is the part that I'm going to be honest with you, still kind of confuses me because it's a little murky. We spent a couple hours this morning researching. I was online all

weekend watching a lot of videos. So let's explain this in as simple words as we can. 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. But here's what we know so far as of our recording at 9 a.m. Pacific time on March 13th. So first, how banks work. Banks work by selling and investing lower risk things like bonds 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. And so when they take your money, it doesn't just go like in their metaphorical mattress, right? Or the bank's backyard buried under some dirt. They take the money and they sell it. They invest it into these lower risk options like bonds. This works most of the time because not

everyone needs their money right away, right? And there's enough circulation to go around. It's kind of like a library, right? 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. 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? So why Silicon Valley Bank in particular? Well, Silicon Valley Bank, as you might gander from the name Silicon Valley, is a favorite among startups and businesses. So in early 2018 to 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. 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 originally. 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. They weren't diversified

in their clientele. So this accumulated in more requests for withdrawals. And then once the first domino fell, the rumors 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. 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 SVB. 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. This was like 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 amount of money, and that depositors would have access to all of their money, and that no losses 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's going to pay for that? Who's going to pay for it? We don't know yet,

right? But the good news is a couple things. One, if you were a member of Silicon Valley Bank, you are not just insured up to the standard FDIC insurance, which is $250,000. Most banks, and I would say any bank worth banking with, is FDIC insured, which means if you put your money in to this bank and it's FDIC insured, you are insured up to $250,000. 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 worry is, one, do I get my money back, period? But two, if I have $300,000, am I only getting $250,000 back?

The Fed has responded and said that depositors will have access to all of their money and that insured and uninsured money will be paid in full. So the question you might now be asking, knowing what happened, is, are banks safe? Is my money safe? One, most likely, yes. I would just normally give you a yes. However, I can't, you know, this is not 100% guaranteed. It is 100% guaranteed if it's up to $250,000 and it's FDIC insured, right? 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 FDIC insured. Always check with your specific financial institution. I would gander a bet that the vast majority of you listening, if your money is in a bank, it's FDIC insured.

What happens beyond that amount of money? What if I have more than $250,000 in the bank? I literally have a two-hour block on my calendar today to go through both my personal finances and her first hundred case finances to make sure that we don't have over two hundred fifty thousand dollars in every bank account. Because when you run a business, you keep reserves, right? We have more than two hundred fifty thousand dollars in the bank to make sure that we can pay our people, to make sure our cash flow is good. And so what I'm going to do is take the money and move it towards a variety of different bank accounts. So one of the easiest things you can do is if you have more than $250,000,

spread it out between banks if you're comfortable with that. 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. What does this mean for the stock market? Should I sell my investments? We have talked about this many, many a time. We will link more resources around stock markets, volatility, riding out the wave. But the stock market is here for a long time, not a good time. It's the exact opposite, right? It's here for a long time, not a good time. 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. We are investing for the long term, right? We are investing even when there's some spicy volatility. So TLDR, is my money safe? Yes, up to $250,000. are. Is my money safe? Yes. Up to $250,000. It is FDIC 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. 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. 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? 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 banks FDIC insured, but also not panicking. This is a long time, not a good time. We will continue to get more information about SVB and their response. I know I am a huge listener of the New York Times podcast, The Daily, and you will get this episode, I believe, on Tuesday, and they are also releasing an episode about SVB on Tuesday. Morning Brew did a great 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 you are worried, know that it is totally normal. And finally, here at Financial Feminist, here at Her First 100K,

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 time to start 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 FDIC-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. 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 we'll link below. We also have Treasury, which is our investing platform where we're doing live coaching and back and forth about news and financial topics. So if that's of interest to you, we also have our book that covers literally everything personal finance 101. So if you're wondering what to do, 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.

So a couple of things that I'm going to be doing today. One, like I said before, I'm going to be checking in on my money. I'm going to be going to my banks. I'm going to move some money around to make sure that myself and the business meets the insurance requirements. 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 informative and makes me feel good, as opposed to panicked and scared and 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 news comes up around money,

because I know that I am also looking for those resources. So why not create them for you? Thank you for being here. Again, don't panic. Everything's going to be okay. We're going to 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 want to hang out here. This is for a long time as well as a good time. Catch you later, Financial Feminists. Thank you so much. Thank you for listening to Financial Feminist, a Her First 100K podcast. Financial Feminist is hosted by me, Tori Dunlap, produced by Kristen Fields, marketing and administration by Karina Patel, Sharice Wade, Alina Helzer, Paulina Isaac, Sophia Cohen, Valerie Oresko, Jack Koning, Khalil Dumas, Elizabeth McCumber, Beth Bowen,

and Amanda LeFue. Research by Arielle Johnson, audio engineering by Austin Fields, promotional graphics by Mary Stratton, photography by Sarah Wolf, and theme music by Jonah Cohen Thank you.