By Miri Rossitto
What a week it has been for banks. In the biggest bank failure since the collapse of Washington Mutual in 2008, we saw Silicon Valley Bank and Signature Bank fail. Credit Suisse was bailed out by the Swiss government just this Wednesday morning.
Silicon Valley Bank had local branches in Beverly Hills, Santa Monica and Pasadena. Signature Bank has a branch in Beverly Hills and corporate offices in Woodland Hills.
Silicon Valley Bank failed because they were top heavy in loans to technology start-ups and invested the money in bonds, which lost value when the Federal Reserve raised interest rates. Signature Bank failed when depositors withdrew their money beyond what the bank could pay using its cash reserve. Credit Suisse’s problems stem from corruption and money laundering charges.
President Biden was in front of the cameras early Monday morning assuring all Americans that depositors’ money was perfectly safe, though investors would not be as lucky because they knew the risks and well, “that’s how capitalism works.”
But is everyone’s money safe and what other options exist for our nervous neighbors and community members? Let’s explore some answers but first, a disclosure: none of this is financial advice and I implore you to talk to a financial expert when making any financial decisions.
First, let’s start with how safe it is to “store” your money in a bank. According to The Federal Deposit Insurance Corp. (FDIC), an independent federal agency insuring deposits in U.S. banks and thrifts in the event of bank failures, the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met. All deposits that an accountholder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount. So, in basic terms, if you have no more than $250,000 in total at any one banking institution, then you are insured and covered. If you have more than $250,000 then you should speak to a financial adviser on the matter.
Are banks your only option? No!! When it comes to financial options, credit unions are growing by leaps and bounds. In February of this year Steve Rick, the chief economist for CUNA Mutual, predicted that “overall credit union loan growth would rise 8% in 2023.” What are the main differences between credit unions and banks? Mahsa Hadjiaghai, district manager at the Warner Center branch of Premier America Credit Union explained that, “The main difference between banks and credit unions is that banks are for-profit and credit unions are non-profit organizations. Simply put, banks are either privately owned or publicly traded, while credit unions are owned by their member owners. Since credit unions do not have to worry about making profits for their shareholders, they can focus on the needs of their account holders. Credit unions have a rich history of evolving from the idea that people working together can create better financial solutions, especially when as owners, members have a vested interest in their collective success. Credit unions typically offer higher savings rates and lower rates on their lending products than banks do. Deposits held at a credit union are insured and protected by the National Credit Union Share Insurance Fund, which is a separate fund not associated with the Federal Deposit Insurance Corporation for banks.”
Echoing that sentiment, “At credit unions, when you open an account customers become members and part-owners when they open an account,” Logix Chief Operating Officer Andrea Carpenter said. “Our profits are returned to members in the form of better rates, lower fees, improved services, and increased reserves to maintain our unmatched financial strength. Deposits are federally insured up to $250,000 by the National Credit Union Administration. Plus, at Logix Federal Credit Union, we have maintained a perfect record of positive earnings since 1937. It is our mission to help our members thrive, and we continue to help generations to reach their own financial success from their first car and mortgage to their retirement plan.”
Financial Partners Credit Union CEO Nader Moghaddam concurred, saying, “By being very disciplined and focused only on the specific saving and borrowing needs of individual members and their families, the credit union has safeguarded its members’ trust. Financial Partners is well capitalized, and deposits are federally insured and backed by the full faith and credit of the United States government. We are proud of our long history of financial stability through many economic cycles and to have been recognized as a Best-in-State Credit Union by Forbes.”
Variety is the spice of life and lucky for us here in Southern California, we have lots and lots of options. From many banking institution choices like Wells Fargo or Union Bank to various other credit unions like Logix, Financial Partners or Premier America, there is plenty of opportunity to shop around.
Many small independent banks are also an option as they are more cautious about speculative lending. Daniel Mestas, Vice President of First Bank Woodland Hills weighed in on the crisis. “First of all, don’t panic. The US Government has guaranteed deposit funds for those who bank at Silicon Valley and Signature Banks. These banks were highly concentrated in a specific industry. Both banks served those industries well for many years but, ultimately, needed more liquidity and capital to persevere through a challenging period. First Bank, a community bank, is a well-balanced family owned bank, well-positioned to endure such challenging times. Reach out to your bank manager for peace of mind.”
And you absolutely should shop around. Just like you need to be prepared for earthquakes, you need to get to know your money management options and understand how they all individually and collectively manage your money. The more you know, the less scary everything is so arm yourself with knowledge.
Miri Rossitto is CEO of COWE Consulting. Follow them on all social @CoweOfficial