Bank Failures Shine Light on Interest Rate Risks

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing the reasons some banks are coming under pressure, including the rapid rise of interest rates, financial market effects, and the role of the FDIC:

Financial markets reacted turbulently to the collapse of Silicon Valley Bank (SVB) on March 10th, 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.

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.

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…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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