Tax & Accounting News
How does the Silicon Valley Bank failure shift business banking strategies?
It has been a tumultuous few days, with smaller regional banks and big names like Charles Schwab under duress.
The Silicon Valley Bank and Signature failures have many entrepreneurs thinking about money management strategies.
Larry Summers, former treasury summarized the situation quite simply, "when interest rates went up, the assets lost their value and put the institution in a problematic situation."
On Saturday, the US government stepped in by approving plans that will backstop depositors affected by these failures.
The Federal Reserve is launching a Bank Term Funding program to help protect other banks that might have the same exposure as Silicon Valley Bank.
How does FDIC insurance work?
According to the FDIC, if you and your family have less than $250,000 in deposits at the same bank, you do not need to worry about insurance coverage; the FDIC protects your balances.
Insuring your accounts in a single Bank is possible if they are in different ownership categories.
Joint accounts are insured up to $500,000.
What should you do if your business has over $250,000 in cash assets?
If you are a company with $1,000,000 in savings, you could open four separate accounts with different FDIC-backed banking institutions. Experts advise keeping one primary bank as your central relationship for operating purposes.
What is the best money management strategy for small business owners?
Multiple accounts with specific purposes can help you minimize risk from fraud and any potential run on your bank.
Some examples include setting up accounts for payroll, taxes, and savings accounts for specific projects. You can set up accounts at multiple institutions to insure funds that are over the limits. Businesses with large deposits should also consider periodic load balancing between accounts.
It is always wise to look up the filings for your financial institution. Also, compare their fees, online banking options, the interest rate paid, and access to decision-makers when choosing your partner.
Is this banking crisis over?
Altimeter Capital’s Brad Gerstner told CNBC’s Halftime Report Monday. “This wasn’t a problem of the start-up ecosystem; this was a national banking problem.” Gerstner continued, “that’s the market telling the Fed that ‘you better slow down; otherwise, a lot more stuff is going to break. We’re going to have a massive recession and much bigger problems.”
Financial advisors hope that the government action will calm the markets and lower the risk of other bank runs. According to Reuters, Karl Schamotta, chief market strategist at Corpay, added, "we think the steps taken by the Fed, Treasury and (the Federal Deposit Insurance Corp) will decisively break the psychological 'doom loop' across the regional banking sector."
The long-term question is whether it will be harder for venture capital firms and tech start-ups to attract funding and business financing terms.
Time will tell.
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