Banks failed. Rich men became publicly agitated, requiring protection. Regulators he entered try to stop the panic. The markets wobbled anyway.
And we, the everyday actors in the economy, are now supposed to do what exactly?
It’s not a rhetorical question. Too many people do not take immediate action when faced with what appears to be a threat. Change banks. Buy gold. Sell everything (or at least something).
However, if you have accepted inaction during this turbulent moment, you may be right. Ask yourself these questions: What has actually changed in the world in the last week? And how have your own financial goals changed?
The answer to the second question is probably “not at all”. The answer to the first is this: Only a few things have changed, at least for now. But none of these are reasons for most people to rethink their goals—or to take any drastic steps to achieve them in the coming days.
The money set got scared
Some of the depositors who encouraged others to pull their money out of the Silicon Valley bank were sophisticated venture capitalists. Signature Bank it also had many corporate clients, particularly in industries such as real estate, where experienced building owners are intimately familiar with economic cycles.
That didn’t stop depositors from running for the hills. “As much love and desire as we have for SVB, fear came first,” says David Selinger, CEO of security firm Deep Sentinel and a longtime Customer of Silicon Valley Bankshe said to my colleague Maureen Farrell.
Rescuers came for the depositor
If venture capitalists and entrepreneurs who face the risk of their livelihoods can get scared so easily, why shouldn’t the rest of us?
Anticipating that question, regulators last weekend decided to make depositors of the two failed banks whole — not just within the $250,000 limits that the Federal Deposit Insurance Corporation normally covers, but for every dollar.
There’s no guarantee they’ll do it again. On Thursday, Treasury Secretary Janet L. Yellen he said of the Senate Finance Committee that there would be no future coverage of uninsured deposits unless leaving these clients in short supply created unacceptable risks to the banking system. She specifically mentioned the possibility of any “serious risk of infection.”
Even if you don’t keep a lot of money in your bank account, your exposure here doesn’t have to be zero. Maybe your employer has had over $250,000 in payroll in one bank account for years without giving it much thought.
Hopefully, employers now understand this risk. It’s worth asking them. It is also possible that regulation – or at least analysis by interested outsiders and rating agencies – will be tighter and will make many banks more cautious.
It’s not much new, but it’s new to you
If you are a 2 before your age, you may not have many memories of 2008 when the banking system was brought to her knees. The financial crisis – a countless calamities before that — is a good reminder that our systems are resilient.
Bankers and entrepreneurs make terrible decisions all the time. The markets are shaking. A bank with “Silicon Valley” in its name has never failed, but waves of economic uncertainty that last for weeks or longer are absolutely nothing unusual.
“At some point, you realize that it all seems to be on edge all the time,” said Tori Dunlap, 28, author of “A financial feminist.”
Your goals probably haven’t changed
So the world around you doesn’t promise anything. But regardless of your age, income or assets, you probably have a list of financial goals.
Has anything that happened in the past week caused you to change those goals? In the midst of a natural interest in how to make sense of rapidly unfolding events, you may not have stopped to take a quiz.
Chances are the answer is no. And if the answer is no, it’s okay to be a bystander for now.
You probably don’t need to run anywhere
For individuals, the best bank stress test is personal. You have more than $250,000 in one institution? The vast majority of people don’t.
If you do, as Ms. Yellen acknowledged, the FDIC may not cover your notional losses. It’s easy enough to solve this by opening accounts at other banks so you’ll have $250,000 worth of coverage at each institution. (You can have more than that with a brokerage firm that holds your retirement savings. There are broad protections there, too, and you can read about them in an article I wrote this week with Tara Siegel Bernard, “Is my money safe?“)
When banks close, there’s often panic and the kind of lines you saw in the photos of Silicon Valley Bank branches last week. However, this is generally what happens to depositors whose balances at a failed bank are below the FDIC limit: Some other entity steps in, and ATM deposits and withdrawals continue more or less as usual.
Still worried? Open a backup checking account with another financial institution. Make sure the debit card remains active. Park some cash in there if you have some spare. Link it to any external savings or brokerage account you have so you can deposit money quickly when needed. And track monthly inactivity or low balance charges.
You probably shouldn’t sprint out of stocks either
As worrisome as the financial world may seem right now, the overall US stock market is up this week. Sure, financial stocks have bounced up and down, but if you have most of your stock investments in plain-vanilla index funds that hold thousands of different company stocks— and you should – your net worth may be higher than a week ago.
Even so, it’s natural to wonder if the prospect of more bank failures is a sign of selling everything you’ve been waiting for. Wouldn’t you feel better if all your money was in cash and not in fluctuating stocks?
It can, for a while. But consider these numbers Nejat Seyhun, a professor at the University of Michigan’s Ross School of Business, generated this week. Imagine holding a giant basket of almost all US stocks from 1975 to 2022 and leaving them alone. The return on this portfolio would be 1,426 percent.
Now imagine that you sold everything now and then when it seemed inferior to you. If you missed only the 10 best performing stock days out of those 12,106 trading days, your return would drop to 602 percent. That’s one potential prize trying to time the stock marketand those lost earnings can mean you have to work years longer than you wanted to.
The advice remains cold comfort for recent retirees or aspiring ones who don’t want to wait out a stock market crash on the cusp of retirement day. If that’s you, the good news is that many banks pay more than 3% interest in savings accounts. You could park the money there for a few years for basic expenses or some similarly safe place if you’re feeling nervous. These savings would give any stock losses in the coming months some time to recover.
Life with the least worst system
If all of the above feels like a slight admonishment from the already comfortable, I get it. Personal finance is too complicated and it’s not your fault. Once you figure it out, one disappointing conclusion goes something like this: For most people, achieving a reasonable level of comfort requires ongoing risk.
So what can be most helpful in times like these, and all the time, really, is to discuss the low hum of insecurity out loud with someone you trust and it will make you feel a little better.
“The headline about the Dow Jones falling is not there to reassure you,” Ms. Dunlap said. “Find people who are there to give you the facts in a non-judgmental way, without the fearmongering that makes things worse.”
