Understanding recent bank failures and what they mean for you
With the back-to-back-to-back failures of Silicon Valley Bank, Signature Bank, and Silvergate Bank, followed by widespread turmoil in the financial markets, it's only natural to wonder whether your own money is safe where it is.
The most important thing to know is that these recent bank failures were the fault of decisions made by those institutions specifically — and that they don’t necessarily reflect on the financial stability of other banks and credit unions.
Nevertheless, their collapse is a timely reminder to learn more about the financial health of your own credit union or bank. Here are a few tips for evaluating how safe your money is.
If you have less than $250,000 in deposits with a single NCUA- or FDIC-insured financial institution, you’re not at risk.
If you have less than a total of $250,000 deposited among your accounts (including checking, savings, money market, CD, IRA, and Revocable Trust accounts), your funds are protected.
If you share any of those accounts with another person, then both of you are individually insured up to $250,000 in deposits. That means that if you and your spouse share a checking account and a savings account, then you’re protected up to $500,000 of deposits. Three account owners? Then you’re protected up to $750,000.
How do you find out if your financial institution is NCUA- or FDIC-insured?
Deposit insurance for credit union members is provided by the National Credit Union Administration (NCUA). All federal credit unions and nearly all state-chartered credit unions (including Vibrant) are protected by NCUA deposit insurance.
You can confirm your credit union’s NCUA status by searching the NCUA member database. You should also see notices about its NCUA insurance posted on its website and on its premises.
Deposit insurance for U.S. banks is provided by the Federal Deposit Insurance Corporation (FDIC). Nearly all U.S. banks are FDIC-insured. As with the NCUA, the FDIC also requires member institutions to post notices about its FDIC membership on its website and on its premises. You can also confirm a bank’s FDIC status through the FDIC website.
If you DO have deposits in excess of FDIC or NCUA limits, take a closer look at your financial institution’s performance.
There may be situations where you need to maintain a total balance above the deposit insurance limit of $250,000 — for instance, if you’re running a business with large cash requirements for payroll or inventory or if you're trying to maximize your interest earnings by consolidating your money in a single account with the best available rate.
If that’s the case, here are some ways to assess your financial institution’s overall health.
1. Find out where your credit union or bank invests its deposits.
Financial institutions generate revenue in two ways — either by lending money out and earning interest on those loans or by investing in other forms of equity — stocks, bonds, and other securities.
You can look at Vibrant’s statement of financial condition to get a broad overview of where we invest deposits — at the end of 2022, about 89 percent of Vibrant's income came from loan interest, with about 11 percent coming from other investments.
In the case of Silicon Valley Bank, by comparison, more than 40 percent of its income came from investments — many in the form of long-term Treasury bonds, which have lost value as interest rates have risen in the last year. Meanwhile, Signature and Silvergate heavily invested in cryptocurrency, which has also lost significant value in the past year.
2. Look for steady deposit growth.
When people and businesses continue to deposit their money with an institution, it’s a sign there’s strong confidence in how the institution manages its assets. In Vibrant’s case, total deposits have grown from about $407 million at the end of 2012 to about $774 million at the end of 2022 — a 47 percent increase in deposits over the last decade.
(You can access past financial statements for Vibrant or any credit union via the NCUA website if you really want to get in the weeds.)
3. Look at the institution’s capitalization classification.
Every NCUA- or FDIC-insured financial institution must meet certain capital requirements that ensure it has enough cash on hand to meet its depositors' needs.
NCUA considers a credit union “well capitalized” if it has a net worth ratio above 7 and a capital ratio above 10. For reference, Vibrant’s current net worth ratio of 9.48 and capital ratio of 14.93 place it well within the "well capitalized" category. (Capitalization classifications are available for every credit union within the quarterly call reports posted on the NCUA website.)
Why a credit union can be a less risky choice than a bank
The bank run that led to the collapse of Silicon Valley Bank resulted from widespread panic among depositors after its financial reporting showed the bank might not have funds available to meet all its financial obligations. Rather than risk losing any deposits in excess of FDIC insurance limits, many customers decided to withdraw their funds while they could and move them elsewhere — making Silicon Valley Bank’s existing issues even worse.
In general, credit unions like Vibrant are far less likely to experience bank runs because the overwhelming majority of their deposits are federally guaranteed. More than 90 percent of credit union deposits fall within deposit insurance limits, while only about 50 percent of bank deposits do.
Additionally, credit unions tend to prioritize safe, sound, and fiscally responsible investments over the pursuit of the ever-higher profits expected by bank shareholders. As member-owned nonprofits, credit unions don’t answer to Wall Street — only to their members. For Vibrant, that means lending money at affordable rates and providing a fair return for members who put their savings into money market accounts and certificates of deposit.
If you’re considering moving your money now, talk to us about how we can help safeguard your deposits while enabling you to meet your financial needs. Open an account today.