Bank Failures Shine Light on Interest Rate Risks

Financial markets reacted turbulently to the collapse of Silicon Valley Bank (SVB) on March 10, 2023, followed two days later by the failure of Signature Bank of New York. With $209 billion in assets and $175 billion in deposits, SVB was the nation’s 16th largest bank and the second largest to fail in U.S. history.1-2

This news was alarming to savers who worried their own bank accounts could be at risk and investors who feared a wider financial crisis. To help restore confidence in the U.S. financial system, the federal government pledged to make all depositors whole and to support other banks that might face liquidity issues stemming from the rapid rise in interest rates.3

These events have drawn new attention to how banks operate and the risks they take to earn money on customer deposits, as well as the government’s role in regulating and supervising bank activities.

What is the FDIC?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency backed by the full faith and credit of the U.S. government. FDIC insurance is intended to reassure depositors and offer protection in case an insured bank becomes insolvent, is liquidated, or experiences other financial difficulties. Most banks in the United States are insured by the FDIC, which protects deposits up to $250,000 (per person, bank, and account category).

When a member bank fails, the FDIC issues payments to depositors (typically up to the limits provided by law) and takes over the administration of the bank’s assets and liabilities. Generally, the FDIC will try to arrange for a healthy bank to take over the deposits of a failed bank. If no bank assumes that role, the FDIC taps a fund that is financed by premiums paid by insured banks.

Why are banks under pressure?

In its quest to bring down inflation, the Federal Reserve has raised the benchmark federal funds rate from near zero to more than 4.5% over the past year.4 Banks earn money by investing customer deposits, often in relatively safe long-term Treasuries and other government-backed bonds. U.S. Treasury securities are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. But as interest rates rise, bonds lose value on the secondary market, which becomes a problem if banks must sell bonds before they mature. At the end of 2022, U.S. banks had booked about $300 billion in unrealized losses on bonds they planned to hold to maturity.5

“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound.”

— Treasury Secretary Janet Yellen

Source: The Wall Street Journal, March 12, 2023

At SVB, poor balance-sheet management also came into play. A California bank that catered to technology start-ups, SVB was highly — and knowingly — exposed to weakness in that volatile sector. As start-up valuations fell and venture capital funds dwindled, withdrawals increased and forced the bank to sell $21 billion in securities at a $1.8 billion loss. More than 90% of customer deposits at SVB were uninsured, which made depositors more likely to panic and pull their money once the bank’s losses came to light.6

Signature Bank’s challenges were similar in that a large share of customer deposits were uninsured — and it was a primary servicer of high-risk cryptocurrency businesses.7

What actions did the government take?

In a joint statement, the U.S. Treasury, the Federal Reserve, and the FDIC guaranteed that depositors of SVB and Signature Bank would have access to all their money. Concluding that the failures posed a risk to the financial system gave the FDIC greater flexibility to return funds that exceed the $250,000 cap. Any resulting FDIC insurance fund losses will be recovered through a special assessment charged to banks. The banks’ shareholders and unsecured bondholders did not receive any government support.8

In addition, the Federal Reserve will help ensure that all banks have enough liquidity to meet depositors’ needs — without selling bonds prematurely — through a new facility called the Bank Term Funding Program (BTFP). The BTFP allows banks to use their government bonds as collateral for one-year loans. Fragile U.S. banks borrowed $164.8 billion combined from the new BTFP and the Federal Reserve discount window, a pre-existing liquidity backstop, during the week ended March 15, breaking a record from the 2008 financial crisis.9

How will other banks be affected?

Moody’s Investors Service cut its outlook for the entire banking sector from stable to negative due to the “rapidly deteriorating operating environment.” Lower credit ratings could push up borrowing costs and cut into earnings. First Republic Bank (FRB) was one of five banks that were put on review for ratings downgrades due to substantial unrealized losses and exposure to the risk of outflows by uninsured depositors.10 FRB’s credit rating was later cut to junk status despite a $30 billion rescue package from a coalition of the nation’s largest banks.11

The current situation is fluid, and it’s too soon to know if more distressed banks will buckle. Regulators emphasized that the U.S. financial system remains resilient and has a solid foundation, in part due to safeguards put in place during the last financial crisis.12

The Federal Reserve launched an internal review to determine what went wrong and whether regulators missed signs of trouble. This may cause officials to refocus attention on smaller institutions and strengthen regulatory requirements accordingly.13

Are your savings protected?

If you have multiple accounts at one bank, you might check to see who is listed as the owner(s) of each account, what category it falls into, and whether it overlaps with other categories that might affect the amount that’s covered. Ownership categories consist of individual accounts, joint accounts, retirement accounts, trust accounts, and business accounts, among others.

You can’t increase your coverage by owning different product types — a checking account, savings account, or CDs, for example — within the same ownership category. A tool on the FDIC’s website ( can help you estimate the total FDIC coverage on your deposit accounts.

If your assets aren’t fully insured, you might consider shifting them to increase your coverage. If you are married, for example, you could expand your total coverage up to $1 million at one bank by opening two separate individual accounts in addition to a joint account. If you have personal or business account balances that regularly exceed $250,000, you might consider diversifying your holdings between multiple financial institutions — or possibly rethink your cash-management strategy altogether.

All investing involves risk, including the possible loss of principal.

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Matthew Englade

Matt graduated in 2008 from Southeastern Louisiana with a bachelor's degree in business. He started his career in financial services, working as a staff member with Delahaye and Associates, where he eventually became a partner.

In 2022 he formed Englade Insurance and Financial Services, where his primary focus is serving his client’s best interest. “But even if you should suffer for what is right, you are blessed.” 1 Peter 3:14

Matt is a resident of Central, LA and enjoys spending time with his wife, Angela, and three children. He also enjoys coaching middle school basketball and giving back to his local church.

Jacob Ashford

Jacob is currently a student at Southeastern Louisiana University and is studying in the College of Business as a Marketing Major.

Jacob pursues his career by working with Matt and Angela in their mission to spread financial sustainability with their current and future clients. He also donates his time to the Southeastern's College of Business by participating in numerous career services for the city of Hammond.

Having two younger sisters, Jacob understands the importance of protecting family values and leading a path to a secure future.

Nathan graduated from Texas A&M University Class of 2006 with a degree in Agriculture Leadership & Development. Nathan has been in public service as a firefighter since 2008. In addition he and Katherine have started, operated, purchased, and sold multiple small business’. Through his experiences; Financial Services has been a lifelong pursuit for Nathan and he is excited to be a resource for people like you, your family, and your business.

Angela Englade

Angela graduated from Southeastern Louisiana University with a Bachelor of Science degree in Nursing. She worked as a Labor and Delivery nurse for 14 years. She decided to continue her love for caring for others through helping people obtain financial health and wellness.

She joined Englade Insurance and Financial Services to guide Matt's clients on becoming aware of potential roadblocks and achieve financial peace of mind. In her free time, she enjoys spending time with her family and exercising.

Along with Matthew, she volunteers many hours to local charities to give back to the community.

Eve is happily married to her best friend Rick since 2012. They enjoy recreational trips like hiking and camping, visiting the beaches in the Gulf of Mexico, and trips to Walt Disney World. They are active in their congregation, donating their time and effort to help run the Audio/Visual presentations for services. She is grateful for all God has given her and believes all the glory goes to Him.

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Matt is a board member of CALEF and is involved committed to its long-term success. The mission of CALEF is to provide police, fire and EMS personnel with the safety equipment they need to serve and protect with excellence. We provide all-day rifle protection and other safety equipment to local law enforcement, fire and EMS personnel. CALEF believes that communities are safer and stronger when local law enforcement, fire and EMS personnel are properly equipped to do their job.

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