This year has been tough for banks as three have now been taken into receivership by the FDIC: Silicon Valley Bank, Signature Bank, and First Republic Bank. These three banks mark the first bank failure since 2020 and has blown past previous records in terms of assets under management (2008 totaled $373B while this year has reached $548B).
The headlines have been dominated by the sheer size of the failures and the poor decisions made by the banks’ leadership leading up to them. As the first two banks collapsed, I pondered what that process looked like for the everyday depositor. Then, a short time later, I got to find out firsthand.
My primary bank First Republic collapsed.
But this didn’t come out of nowhere. First Republic’s stock was getting hammered for weeks as worries ran high about the stability of the bank.
Thankfully, my funds were fully FDIC-insured as I had less than $250,000 in my account. So even during the final weeks of rapidly declining stock prices and negative headlines in the press, I never panicked.
If your financial institution ever comes under financial pressure or even goes into receivership, here’s what you need to know.
Bank failures are uncommon, but not unheard of
The FDIC was founded in 1933, at the height of the Great Depression, to create federal insurance for consumer deposits. The FDIC aims to restore depositors’ funds in the event of a bank failure and instill confidence in the banking system. However, that doesn’t mean banks still can’t fail.
Since 2001, there have been a total of 564 bank failures in the United States, including the three mentioned above. However, the vast majority of bank failures occurred during the Great Recession and its immediate aftermath. By comparison, just 32 banks have failed since 2015.
Each time a bank fails, the FDIC steps in to decide what the next steps are for the institution. This could include continuing to run the bank as usual, attempting to find a buyer, or winding down operations as the FDIC pays off depositors.
Each case is different, but there is a common theme depositors should remember: always make sure you’re depositing your funds with an FDIC (or NCUA if you prefer credit unions) institution. The standard insurance protection at FDIC-protected institutions is $250,000. However, some places like M1 offer additional FDIC insurance on deposits — up to $5 million in coverage ³. By doing this, your funds are protected in case of a failure.
My experience with a bank failure
As First Republic began to crumble, I had multiple people asking me if I was running to the bank to pull my money out. I confidently said no. I knew there was no reason to panic as I was completely insured by the FDIC.
But not long after the bank went into FDIC receivership, it was purchased. I had no idea what to expect going forward. But come to find out, all banking functions remained exactly the same. There were no glitches or issues whatsoever. I have the same debit card, app on my phone, customer service line and access to First Republic branches.
I took this time to reanalyze all of my investing and banking accounts. I continued consolidating my retirement funds to my M1 Brokerage Accounts, and I moved a lot of my liquid cash into the M1 High-Yield Savings Account. The 5.00% APY2 that the M1 High-Yield Savings Account offers beat First Republic’s 1.29% APY (that I was offered) by 287%.
Several weeks later, I received a letter in the mail from JPMorgan Chase stating that they had formally taken over First Republic. The second page of the letter was from the FDIC notifying me that I have until November 1, 2024, to claim ownership of my deposits. However, I’m not planning on staying with Chase for long as I’m migrating my financial life over to M1.
But for now, the day-to-day of my banking activities remains exactly the same. However, that is slowly winding down as Chase begins absorbing the portfolio of the now-defunct First Republic Bank.
The M1 bottom line
Banking is built upon trust, and it’s important that consumers trust where they deposit their hard-earned money. That’s why it is vitally important to deposit and invest your money in insured institutions in case of a bank failure. M1 has both FDIC and SIPC insurance for deposits and securities, respectively. In fact, the M1 High-Yield Savings Account comes with up to $5 million in FDIC protection ³ and your investments are protected up to $500,000 through SIPC.
* M1 is not a bank. M1 Spend is a wholly-owned operating subsidiary of M1 Holdings Inc. M1 High-Yield Savings Accounts are furnished by B2 Bank, NA, Member FDIC.
2 Obtaining stated APY (annual percentage yield) or opening a savings account does not require a minimum account balance. Stated APY is valid from date of account opening. Account fees may reduce earnings. Higher APY rate subject to paid M1 Plus subscription. Rates are subject to change.
³ B2 Bank is a member FDIC institution and does not itself provide more than $250,000 of FDIC insurance per legal category of account ownership as described in FDIC regulations. Additional FDIC insurance coverage is provided through B2’s Insured Deposit Network Program involving other FDIC insured depository institutions. Deposits may be insured up to $5,000,000 through B2’s Insured Deposit Network Program. Full terms of the Program can be found at m1.com/legal/agreements/HYSA_Agreement and a complete list of participating banks in the program can be found at m1.com/legal/agreements/depositnetwork
M1 Plus is a paid membership that confers benefits for products and services offered by M1 Finance LLC, M1 Spend LLC and M1 Digital LLC, each a separate, affiliated, and wholly-owned operating subsidiary of M1 Holdings Inc. “M1” refers to M1 Holdings Inc., and its affiliates.