Market Overview

How to survive the next bank run

If there’s one thing that stands out about the run on Silicon Valley Bank, it’s the immediacy. In the time it took depositors of Zelle to take all their money over to another depository institution, it was all over. Even if you’re an e-sports athlete with gigabit wi-fi at home, there’s no way you’ll have enough time to get your money out before the whales get theirs out first the next time this happens.

So, it’s important that you don’t put your money any place where you can’t get to it if there ever is another bank run. Don’t take what follows as advice. We’re just thinking aloud here.

5 ways to keep your principal safe

Don’t keep more than $250,000 in any one account. The FDIC did a lot of people favors when it waived its upper insurable limit for SVB accounts. Of course, a lot of those people are tech billionaires. You aren’t. If your bank sputters out, Washington may not be as concerned.

Be an active investor. If you’re keeping more than 10% of your assets in cash for an extended period of time without a plan, you might be doing it wrong. If you want to take defensive positions, there are utility stocks, other high-dividend shares, and an array of government, municipal and corporate bonds to consider.

Consider commodities. There’s no need to be a full-on goldbug, but right now there are worse ideas than trading dollars for precious or industrial metals. We wrote about this in 2021 and, back then, foreign exchange markets were eerily quiet. You might also want to take a look at holding some of your cash in reserve currencies other than U.S. dollars.

Look to non-banks. To start with, there is always the option of opening a conventional brokerage account and investing your money in Treasury bills that auto-roll every 30 days; this is what institutional investors do with their own excess capital. Aside from that, there’s a whole “neo-bank” or “shadow bank” industry of financial institutions that are really just phone apps. While they lack the perceived security of chartered, regulated banks, they benefit from not having the overhead of such depository institutions. Separately, if you’re looking for a business loan, you can go straight to the private markets. A good place to start would be this list of crowdfunding portals. Lastly, some of the highest-paying interest rates out there involve “staking” a class of cryptocurrencies called “stablecoins”. By agreeing to buy and hold these tokens for a given period, you can get yields that you’ll never see from CDs or money market accounts.

Spend some money on yourself. Thriftiness is a virtue, certainly, but everything has its limits – even a virtue. If inflation is eating away at your nest egg’s value faster than markets can replenish it, then maybe it’s time to splurge a little. If taking a vacation to a bucket-list destination sounds overindulgent, then consider upgrading your kitchen and bathrooms, or re-landscaping your front yard. You know, the kind of stuff that will enhance the value of your home when it comes time to sell.

You’re not alone

None of these suggestions are mutually exclusive nor do they, by any means, comprise a complete list of ways to keep excess money out of an ailing banking system.

Still, there’s no need to panic. Even if there is a run on your bank – that is, even if all the depositors want to take out their money at the same time – that doesn’t mean the bank is doomed to fail. It probably has adequate reserves. Another bank might just buy the liquidated assets – including your account – and business will continue on Monday  as it did on Friday, just with a different logo on the website. Ultimately, part of the Federal Reserve’s brief is to be the lender of last resort. Alone or in collaboration with the U.S. Treasury, it might decide to bail the bank out.

But none of this is an immutable promise. You need to own your personal finances. Of course, it’s always a good idea to have a financial professional guide you through the inevitable rough times.