More than one month after banking alarms sounded across the globe with the collapse of Silicon Valley Bank and Signature Bank, lending institutions are still reeling, and consumers are skeptical.
The Federal Reserve is releasing the findings of its investigation into what led to SVB's collapse, but other banks aren't out of the woods.
After the collapse of SVB and Signature Bank, customers worried about the solvency of their own banks. Possibly looking for peace of mind, record levels of deposits poured into large banks like Bank of America, JP Morgan Chase, and Citibank from mid-size and regional banks.
"Banks fail, but that doesn't mean that they just can't be absorbed into a non-failing bank," said Geoffrey Smith, Clinical Professor of Finance at ASU's W.P. Carey School of Business. "That doesn't mean that the building disappears, you know, or anything like that..."
Professor Smith says, instead of asking how big or small a bank is, consumers should focus on if the bank is FDIC-insured.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government. It protects and reimburses deposits up to the legal limit of $250,000 per depositor, per insured bank, for each account ownership category.
"Banks don't always have all that cash on hand to give to their depositors all at once. And so that's when you have this idea of a bank run and liquidity problems," Smith said.
The Federal Reserve Bank is making good on all depositors from SVB's collapse - even the uninsured.
But to help stabilize the industry and rebuild consumer trust, the central bank started the new Bank Term Funding Program. It's an emergency lending program for banks needing cash infusions.
They can get a favorable loan to cover capital needs created by a decrease in deposits in the fallout of the SVB collapse. This program avoids the need for a bailout or impact to taxpayers.
