By Ron Lieber
March 20, 2023
Banks failed. Rich men became publicly agitated, demanding protection. Regulators stepped in to try to stop the panic. Markets wobbled anyway.
And now we everyday actors in the economy are supposed to do what, exactly?
It’s not a rhetorical question. Too many people default toward immediate action in the face of what seems like a threat. Change banks. Buy gold. Sell everything (or something, at least).
If you’ve embraced inaction in this turbulent moment, however, you may have it right. Ask yourself these questions: What has actually changed about the world in the past week? And how have your own financial goals changed?
The answer to that second question is probably “not at all.” The answer to the first is this: Only a few things have changed, at least so far. But none of them are cause for most people to rethink their goals — or pursue any drastic action in pursuit of them in the coming days.
The Moneyed Set Got Scared
Some of the depositors who encouraged others to yank their money out of Silicon Valley Bank were sophisticated venture capitalists. Signature Bank also had a lot of corporate clients, especially in industries like real estate, where experienced building owners are intimately familiar with economic cycles.
That didn’t keep depositors from running for the hills. “As much love and desire we have for SVB, fear came first,” as David Selinger, the chief executive of the security firm Deep Sentinel and a longtime Silicon Valley Bank customer, told my colleague Maureen Farrell.
The Rescuers Came for Depositors
If the venture capitalists and entrepreneurs who face risk for a living could frighten so easily, why shouldn’t the rest of us be scared out of our minds?
Regulators anticipated this question last weekend and decided to make depositors of the two failed banks whole — not just within the $250,000 limits that the Federal Deposit Insurance Corp. normally covers but for every last dollar.
There is no guarantee that they would do so again. On Thursday, Treasury Secretary Janet Yellen, told the Senate Finance Committee that in the future, there would be no coverage for uninsured deposits unless leaving those customers short would create unacceptable risks for the banking system. She specifically mentioned the possibility of any “serious risk of contagion.”
Even if you don’t keep much money in your bank account, your exposure here may not be zero. Perhaps your employer has for years left way more than $250,000 in payroll money sitting around in a single bank account without thinking much about it.
Hopefully employers have gotten wise to that risk now. It’s worth asking them. It’s also possible that regulations — or at least analysis by interested outsiders and rating agencies — will get tighter and cause many banks to be more careful.
Not Much New, but It’s New to You
If you have a two in front of your age, you may not have many memories of 2008, when the banking system was brought to its knees. That financial crisis — and countless calamities before that one — is a good reminder that our systems are resilient.
Bankers and businesspeople make terrible decisions all of the time. Markets shudder. A bank with “Silicon Valley” in its name has never gone belly-up before, but there is absolutely nothing abnormal about rolling waves of economic uncertainty that go on for weeks or longer.
“You just realize at some point that all of this seems to be teetering on the edge at all times,” said Tori Dunlap, 28, the author of “Financial Feminist.”
Your Goals Probably Haven’t Changed
So the world around you makes no promises. But no matter your age, income or assets, you probably do have a list of financial goals.
Has anything that happened in the past week caused you to change those goals? Amid the natural concern over how to make sense of the rapidly unfolding events, you may not have stopped to quiz yourself.
Chances are the answer is no. And if the answer is no, it’s fine to be a bystander for now.
You Probably Don’t Need to Run Anywhere
For individuals, the best bank stress test is a personal one. Do you have more than $250,000 at a single institution? The vast majority of people do not.
If you do, as Yellen acknowledged, the FDIC might not cover your theoretical losses. It’s simple enough to solve for this by opening accounts at other banks, so that you have $250,000 worth of coverage at each institution. (You might have more than that at a brokerage firm that stores your retirement savings. There are broad protections there, too, and you can read about them in the article I wrote this week with Tara Siegel Bernard, “Is My Money Safe?”)
When banks shut down, there is often panic and the kinds of lines you saw in photos of Silicon Valley Bank branches last week. Still, what generally happens for depositors whose balances in a failed bank are under the FDIC cap is this: Some other entity steps in, and deposits and ATM withdrawals continue more or less as normal.
Still worried? Set up a backup checking account at another financial institution. Make sure the debit card stays active. Park a bit of money there if you have some to spare. Link it to any outside savings or brokerage accounts you have, so you could deposit money quickly if need be. And watch for monthly inactivity or low-balance fees.
You Probably Shouldn’t Sprint From Stocks, Either
As unsettling as the financial world may seem right now, the overall U.S. stock market rose this week. Sure, financial stocks bounced up and down, but if you have most of your stock investments in plain-vanilla index funds that own thousands of different company shares — and you should — your net worth may be higher than it was a week ago.
Even so, it is natural to wonder if the prospect of more bank failures is the sell-everything sign that you’ve been waiting for. Wouldn’t you feel better if all of your money was in cash and not in gyrating stocks?
It might, for a bit. But consider these numbers that Nejat Seyhun, a professor at the Ross School of Business at the University of Michigan, generated this week. Imagine that you held a giant basket of just about every U.S. stock and left it alone from 1975 to 2022. The return on that portfolio would have been 1,426%.
Now, imagine that you sold everything here and there when things felt iffy. If you missed just the 10 best days of stock performance out of those 12,106 trading days, your return would fall to 602%. That’s one potential price of trying to time the stock market, and those lost returns could mean having to work years longer than you wanted to.
The stay-put advice is cold comfort to recent retirees or aspiring ones who don’t want to weather a stock market crash on the cusp of quitting day. If that’s you, the good news is that lots of banks are paying more than 3% interest on savings accounts.
Living With Complexity
If all of the above feels like a mild scolding from the already comfortable, I get it. Personal finance is way too complicated, and it’s not your fault. Once you do figure it out, one unsatisfying conclusion goes something like this: For most people, achieving a reasonable level of comfort requires ongoing risk.
So what may be most helpful in times like these and all of the time, really, is discussing the low buzz of uncertainty, out loud, with someone you trust who can make you feel a bit better.
“That headline about the Dow Jones dropping is not there to soothe you,” Dunlap said. “Find people who are there to give you facts in a nonjudgmental way, without the fearmongering that makes everything worse.”
c.2023 The New York Times Company
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