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Bank Failures & Your Wealth

Investors and markets alike were rattled in March 2023 as Silicon Valley Bank and Signature Bank were declared insolvent.

While the Fed stepped in to protect depositors, investors naturally wonder what kinds of protections are in place for their investment and banking accounts.

Here’s what you should know about your bank deposits, brokerage accounts, and money market investments. 

Q. Are my bank deposits protected?

Under normal circumstances, the FDIC insures bank deposits up to $250,000 (this was increased in the wake of the 2008 financial crisis). After the Silicon Valley Bank failure, however, the Federal Reserve announced its new Bank Term Funding Program (BTFP), which in effect  protects depositors of all eligible US financial institutions in amounts insured by the FDIC and larger uninsured amounts. 

Q. Are my brokerage accounts protected?

A. With a brokerage account, your assets are custodied by a broker-dealer, such as Charles Schwab or Fidelity, and held in your name.

Your securities—including stocks, bonds, ETFs,  mutual funds and money market funds—are also segregated from the broker-deals holdings, as required by the SEC’s Customer Protection Rule, so that in the unlikely event that a broker-dealer becomes insolvent, these segregated assets are not available to general creditors and are protected against creditors’ claims. Government regulators have reporting and auditing requirements in place to help ensure all broker-dealers comply with this rule.

Additionally, brokerage accounts are insured by the Securities Investor Protection Corporation (SIPC), which provides up to $500,000 of protection for accounts held in each separate capacity (for example, joint tenant or sole owner), with a limit of $250,000 for claims of uninvested cash balances.

According to the SIPC, “99 percent of persons who are eligible get their investments back with the help of SIPC.” Many brokers, including Schwab and Fidelity, also have excess SIPC insurance via private insurers. 

While Schwab’s stock price fell in the wake of the bank failures and the value of its publicly traded bonds has fluctuated, this has no bearing on the regulatory protections of client accounts held at Schwab. 

Q. Are money market fund investments protected? 

Assets in money market funds are at an all-time high of $5.1 trillion after investors poured more than $200 billion into money market funds in the wake of the bank failures.

Money market shares held at a brokerage firm are covered by SIPC’s $500,000 securities protection. While money market funds are often considered cash equivalents, they are investments and can lose money. Money market funds are required to hold extremely short-term debt instruments, maturing within days or weeks, which allows them to maintain a steady NAV of $1 per share. This contrasts sharply with Silicon Valley Bank, which owned long-term Treasuries that lost considerable value in recent months due to the rising interest rates. 

If you have questions about how your accounts are protected, please reach out to your adviser or set up a time to talk with a FundX adviser.

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