US federal regulators had to take over the California-based SVB, one of the US top 20 largest financial institutions, last Friday after panicking customers withdrew a staggering $42 billion from the bank's coffers. Two days later the Federal Deposit Insurance Corporation (FDIC) also took over Signature Bank.
On the other side of the Atlantic, an old European lender, Credit Suisse, spiraled into crisis earlier this week in the aftermath of a string of bad strategic decisions. Now, investors fear that a potential domino effect could disrupt the western banking system.
As such, one might ask: "Is my money 100% safe in a bank?"
Obviously, it is not 100% safe, admitted Marc Ostwald, chief economist at ADM Investor Services International.
"On the other hand, nowadays, there are a lot of deposit protection schemes in most countries around the world," he continued. "There are deposit schemes and as long as you are a depositor rather than an equity owner or a bond holder, you will be protected. In the case of equity or bond holders, obviously you will not be."
In the wake of the SVB and Signature Bank collapse, US President Joe Biden signaled that the federal government would protect depositors, while leaving shareholders and investors out in the cold.
"Americans can rest assured that our banking system is safe," Biden said. "Their deposits are secure." The Biden administration guaranteed that SVB and Signature customers would have access to their money starting March 13, even when it comes to uninsured deposits.
Will I Lose My Money if the Bank Collapses?
Still, one should bear in mind that it all depends on the country one is actually living in, remarked Ostwald.
"Basically, all deposits are guaranteed. But normally it's $250,000 [maximum in the US]. In the UK, it's £85,000. In the euro area, it's €100,000," he explained.
In other words, if one has less than the aforementioned ceilings in the respective banks, one has nothing to worry about.
What Happens if You Have More Than 250k in the Bank?
"What happens if you have more than 250,000 in the bank? As I say, it really depends on which country you're in. So in general, the obligation to repay the deposit is what's in the deposit insurance scheme. And then you have to wait thereafter to see how much can actually be sold off from the banks’ assets to fulfill all their liabilities to creditors which depositor is effectively a creditor," Ostwald explains.
To sleep well at night one should check out, depending on which country one is actually living in, what the maximum guaranteed amount is for in terms of a deposit scheme and spread one's money around various banks to make sure that in no cases that one has more than the amount which is guaranteed under the deposit insurance scheme, according to the economist.
"And all your accounts will always be protected," Ostwald pointed out.
Where to Put Your Money in an Economic Collapse?
But what if one's nation is facing an economic collapse?
If the economy is crumbling, one should rather, to a certain extent, withdraw one's money from his/her bank accounts, according to the financial expert.
"It's always useful to have cash in hand," he said. "On the other hand, in an increasingly electronic age, it's more complex, simply because a lot of things are held electronically rather than in physical form, but nevertheless wholesale taking out. But one also has to consider the fact that if you do have a lot of money at home, you are vulnerable to the fact that if anyone actually becomes aware that you have a lot of money at home (…) people will target you or thieves will likely target you."
Storing cold hard cash at home does not sound like a good way out, according to the economist. However, there are other options: "Obviously, the first one, which always comes to mind for a lot of people [is to invest money] in gold and jewelry and in hard assets which can be exchanged for goods," Ostwald concluded.
Indeed, following the unfolding crises which engulfed three big western banks, gold and silver prices surged, as their safe-haven appeal is attracting anxious investors. On Wednesday, the yellow metal reached the $1,900 mark, hitting a new six-week high. It's hardly surprising given that the world has entered an era of geopolitical and financial uncertainties.