Recently, Silicon Valley Bank (SVB), a commercial bank headquartered in Santa Clara, California, failed. SVB was the 16th-largest bank in the United States at the time of its failure on March 10, 2023, and was the largest bank by deposits in Silicon Valley.

For companies that held assets at SVB, losing access to their deposits meant bills couldn't be paid, payroll wasn't made, and money for supplies and other expenditures wasn't accessible.

For bank customers and investors, the news may have left them wondering what they would do if this was their financial institution. Bank customers and investors have some protection through FDIC insurance or SIPC, but understanding what each cover can help them plan for failure risk.

Understanding what FDIC insurance covers

Banks can become a FDIC-member bank and carry insurance on deposits of their customers. However, it is important for people to understand how FDIC insurance works and what it covers.

The Federal Deposit Insurance Corporation (FDIC) was created during the depression of the 1930s to help rebuild Americans' trust in the banking system. During this period, many banks failed, and depositors lost assets. Today, FDIC insurance protection is available for a fixed fee, paid by FDIC member banks. However, not all banks are FDIC members, which means they don't carry FDIC insurance on deposits.

In the event of a bank failure, the FDIC uses the insurance fund to guarantee bank customers' deposits up to applicable limits, which is $250,000 per ownership category. An account ownership category could be an individual account, a joint account, or a business account. An owner can have multiple types of accounts, such as a checking or savings account, but only $250,000 will be covered for each ownership category. It's important to note that FDIC insurance treats business accounts like personal ones.

For example, a business with a checking, savings, and money market account will be covered up to $250,000. If the combined balances of all accounts equal $400,000, the account holder would not be insured for the additional $150,000 and may not recoup it. Once the bank's assets are liquidated, the account holder may or may not be paid the $150,000 over the FDIC limit. First, the FDIC fund is made whole; then, the FDIC determines if the remaining assets will be divided among customers that lost assets above the $250,000 threshold.

FDIC insurance covers the following deposit products:

• Checking accounts
• Savings accounts
• Money Market Deposit Accounts (MMDAs)
• Certificates of Deposit (CDs)
• Negotiable Order of Withdrawal (NOW) accounts

FDIC insurance DOES NOT cover Non-deposit products such as:

• Stocks
• Bonds
• Mutual funds
• Annuities
• Insurance products
• Crypto assets

The Securities Investor Protection Corporation (SIPC) covers securities, mutual funds, and bonds. If you have questions about the SIPC's insurance coverage, visit your financial professional.

How can investors protect their bank deposits?

• Do business only at banks that are FDIC insured
• Have more than one bank
• Use different account ownership categories- individual, joint, or legally titled accounts such as LLCs, S Corps, etc.

Understanding What SIPC Covers

The Securities Investor Protection Corporation (SIPC) protects customers if their brokerage firm fails. Brokerage firm failures are rare. If it happens, SIPC protects the securities in your brokerage account up to $500,000 (of which $250,000 can be for claims for cash awaiting reinvestment). SIPC protection is only available if your brokerage firm fails and SIPC steps in. You must file a claim to receive protection from SIPC. SIPC's ability to satisfy your claim is limited by law.

SIPC protects your investments if:

• Your brokerage firm is a SIPC member.
• You have securities at your brokerage firm.
• You have cash at your brokerage firm to buy securities.

SIPC does NOT protect:

• Your investments if the firm is not a SIPC member.
• Against market loss.
• Promises of investment performance.
• Commodities or futures contracts.

Diversifying your assets and where they are held may help you manage the risk of a bank failure or brokerage firm failure. If you have questions about how FDIC insurance works or what SIPC covers, contact our office at any time.