SCSU’s Banaian: Average Person Not Affected By Recent Bank Failure

Bank failures aren't unusual but a bank failure becoming public information is.  That according to St. Cloud State Economist and Dean, School of Public Affairs King Banaian.  He says Silicon Valley Bank in California bought a lot of Government bonds which were negatively affected by the interest rate rise.  Banaian says rates went from less than 1% to 4.5% which sent the value of the bonds down.  He says the value collapsed and their depositors requested their money back.

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Banaian says word got out of the bank problems with Silicon Valley Bank and a flood of depositors requested their money out at the same time.  The bank didn't have the money to account for all the withdrawals which caused the bank to fail.  Because of the size of the failure the FDIC needed to step in immediately to take ownership of the bank and this became public due to the timing of the failure. Banaian says when a bank fails the FDIC would typically enter the bank at the end of the business day on a Friday and take ownership with a new owner in place starting the next Monday.  Aside from the name of the bank changing little is noticed by those with money in that bank.

The FDIC insures a depositor's account up to $250,000. Many of these accounts at Silicon Valley Bank had accounts worth more than $250,000.  The Federal Government has stepped in and indicated they will insure depositors for the complete dollar amount lost.  Banaian says the Federal Reserve is meeting this week to determine if they could insure individual depositors for more than $250,000.  He says congress would need to step in to change the law which currently insures depositors for up to $250,000.

Because the majority of Central Minnesotans do not have more than $250,000 in the bank they are not affected by this recent development.  Banaian says a solution for those who do have more than $250,000 in a bank account is to place those dollars in different banks.

If you'd like to listen to my conversation with King Banaian it is available below.