Last week, Silicon Valley Bank collapsed.  The headlines sound scary — it's the second-biggest bank collapse in U.S. history.  But there's a lot of misinformation going around, so we want to walk you through what actually happened. 

When you deposit money at a bank or credit union, you might remember seeing a note or icon that the money is FDIC insured.  That means that the Federal Deposit Insurance Corporation protects the money you deposited in the unlikely event that the bank fails.  But — and this is key — the insurance currently only covers deposits up to $250,000 per depositor, per account, and per bank.  (For example, a trust checking account with two beneficiaries is protected up to $500,000.) 

So why did this news send shockwaves through the headlines?  Silicon Valley Bank — SVB for short — serves a number of technology and venture capital firms. The vast majority of its deposits were uninsured. That means many firms that had more than $250,000 deposited could have potentially lost money after regulators shut the bank Friday.  A number of these accounts belong to companies funding operations and payroll, so if the money isn’t returned quickly there are concerns the companies may struggle to pay employees or vendors.  

To keep things simple, here are the key takeaways from this complex situation.   

• Silicon Valley Bank collapsed quickly because it didn’t have enough cash to pay depositors leaving in droves, so the federal regulators closed the bank since it was insolvent. 
• Yesterday, the regulators stepped in to back all Silicon Valley deposits regardless of the amount.  The FDIC will fully protect everyone who had money in Silicon Valley Bank.  Customers will have access to their money by today.   
• The costs won’t be placed on the taxpayers.  The bank and their investors aren’t getting a bailout.  The FDIC is backed by the government but not funded by the government.  Banks pay ongoing insurance dues to cover bank failures, and when there isn’t enough money, the FDIC can borrow from the federal government.   
• Why is this situation different than the 2008 Financial Crisis?  For one thing, the United States has stricter banking regulations anticipating modern-style bank runs.  The federal government also acted quickly to quash the crisis.   

This is an important story.  Given how connected our economy is, the ripple effects could be significant. However, we want to emphasize one point: 

SVB's collapse does not mean your money is at risk.  Bank deposits up to $250,000 are FDIC insured and protected.  Additionally, in the modern era banks that fail are quickly taken over and a new bank/credit union honors deposits and takes over the existing loans of a customer.  This isn’t a guarantee but has been the course of action in numerous bank failures.

We’re likely to see some ongoing volatility while the markets react to the instability in the banking industry.  As we often say, now is the time to focus on what you can control and tune out the rest of the noise.   

Until next week,

Your Eagle Wealth Team

While inflation may be cooling, the cost of groceries still feels red-hot. Expensive trips to the market might encourage some creativity right now in the kitchen.  Check out this Stuffed Pepper Soup for a hearty, comforting soup that’s so delicious you’ll forget it’s (somewhat) inflation-proof.     

The Best Stuffed Pepper Soup

Ingredients

• 1 1/4 lb ground beef (80-85 % lean)
• olive oil
• 1 large yellow onion, diced
• 4 cloves garlic, minced
• 15-ounce can of beef broth
• 15-ounce can of petite-cut diced tomatoes
• 17 ounces tomato sauce
• 1 tsp Italian herbs
• 1 bundle of fresh sage and oregano (optional)
• 1 tsp paprika
• 2 tsp Sherry vinegar
• salt and black pepper to taste
• 2 large bell peppers, seeded and diced (look for frozen peppers for even more savings)
• 2 cups cooked long-grain rice

Instructions

1. Brown the beef in a large heavy bottomed soup pot.  Add a touch of olive oil if your meat is very lean.  Break up the beat as you brown.  Remove to a bowl.
2. Add the onions to the same pan, and sauté for about 10 minutes until softened…you aren't looking to brown them.  Add the garlic and sauté a minute or so more.
3. Add the beef back into the pot, along with the broth, tomatoes, and tomato sauce.  Give everything a good stir.  Add the dried herbs, the fresh herbs, tied in a little bundle (if using) paprika, vinegar, and salt and pepper to taste.  Bring up to a simmer, then cover and simmer on low for about 30 minutes.
4. Remove the bundle of fresh herbs, it's done its job.  Add the peppers and continue to simmer for a few more minutes, just until the peppers begin to soften.  Serve the soup in bowls with the rice.  Garnish with parsley and lots of Parmesan cheese.

Adapted from The View from Great Island

The Week on Wall Street

Stocks tumbled last week as investors reconsidered their interest rate expectations after Fed Chair Powell’s Congressional testimony that rates may need to go higher. Stocks also were rattled when a west coast bank was placed into receivership on Friday following a run on deposits.

The Dow Jones Industrial Average dropped 4.44%, while the Standard & Poor’s 500 lost 4.55%. The Nasdaq Composite index fell 4.71% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.37%.^1,2,3

Rate Fears, Bank Scare

Congressional testimony on Tuesday by Fed Chair Jerome Powell that interest rates may require a higher increase faster than planned unnerved investors, dimming the hopes of any pause in rate hikes this summer. After stabilizing the following day, stocks trended lower as the financial sector came under pressure. The lower move was triggered by a specialty bank's liquidity issues, though regional and money center banks could not escape the selling.

Labor market strength in a Friday report exacerbated rate-hike anxieties, though cooling wage gains balanced an above-consensus new jobs number. Markets appeared to take the employment report in stride but fell on worries arising from the shutdown of a tech-centric bank.⁴

Powell’s Congressional Testimony

Fed Chair Powell last week testified on Capitol Hill during which he acknowledged that the economy was running hotter than he had expected. He said that labor market strength and stubbornly elevated inflation may require the Fed to raise rates quicker than anticipated and above levels previously contemplated.

The market did not respond well to Powell’s change of tone. Many now see the potential of a 0.50% rate hike coming out of the Federal Open Market Committee’s (FOMC) March 21-22 meeting instead of the expected increase of 0.25%. Powell did say that the FOMC would consider the monthly employment report released last Friday and upcoming inflation reports before arriving at a decision.