What has been going on in the banking industry lately? How does this impact college students? What concerns should I have? These may be the questions running through your head if you have been watching the news. Two large banks have failed which means the bank did not have enough money to meet the number of withdrawal requests they were receiving from its customers. This is major news because these are some of the largest bank failures since the 2008 Financial Crisis/Recession. Silicon Valley Bank, also known as SVB, was the first to fail and it shut down for a variety of reasons. SVB was in Santa Clara, California, which is the tech capital of the US and almost all their customers were start-up tech companies meaning the bank relied heavily on the performance of technology companies. SVB also had an extremely high number of uninsured deposits. For those that don’t know, the government created a program called the Federal Deposit Insurance Corporation (FDIC) which will insure deposits at most banks up to $250,000. For example, if you had $300,000 at a bank and it failed you would only receive $250,000. However, if you had $50,000 at the bank you would only receive your total deposit of $50,000, as the amount is under $250,000. At SVB, over 90% of their deposits was over the $250,000 insured amount meaning if SVB failed lots of customers would lose most of their money.

During Covid, tech companies did very well, but recently they have fallen on harder times. Smaller tech companies have been hit the hardest and they have had to withdraw lots of money from their banks to stay afloat. With SVB heavily concentrated on small tech companies, they have had to meet the demand of lots of withdraws. When you save your money with a bank the money does not simply sit there, rather the bank does a variety of different things with it such as investing and loaning out your money. SVB made some unwise investing decisions and had to take major losses on those investments to meet the new demand for withdrawals. Essentially because they took some large losses on their investments, they had to announce that they needed more money, also known as a liquidity issue, which opened the floodgates. SVB customers feared they would lose all their money since the bank was not diversified and making bad investments, so the withdrawals poured in and SVB did not have enough money to cover all the withdrawals which led to the bank shutting down. As a result, Signature Bank also failed a few days later for similar reasons in part due to what happened with SVB.

How does this impact college students and should we be concerned? While it may be concerning Joshua 1:9 tells us “Be strong and courageous. Do not be afraid; do not be discouraged, for the Lord your God will be with you wherever you go.” This tells us we do not need to be afraid of what is happening, but we should be diligent and wise when dealing with the banking industry. It is important to make sure the bank you are using is FDIC insured, you can do that by looking up your bank using this link: https://banks.data.fdic.gov/bankfind-suite/bankfind. You may have your money at a credit union, and credit unions are insured in a similar manner that banks are, but through a different organization called the National Credit Union Share Insurance Fund (NCUSIF). You can use this link to search your credit union: https://mapping.ncua.gov/ResearchCreditUnion. Most banks and credit unions will have it advertised at their locations or on their websites that they are insured. While most college students do not have $250,000 in cash, it is important to be mindful of this insured limit when banking.

Other helpful tips when searching for a bank are reputability, location, fees, and savings rates. As previously mentioned, you could also go with credit unions which are not-for-profit and member-owned. Usually, credit unions have lower fees and might offer attractive loans. Another option in banking is online savings accounts which provide higher savings rates. When thinking about making a banking decision it is important to do the research and weigh the pros and cons to each bank.

Citations

American Bible Society. (1986). joshua 1:9. In The holy bible: Containing the old and new testaments ; translated out of the original tongues and with the former translations diligently compared and revised. essay.

Bennett, R. (n.d.). How to choose a bank: 8 steps to take. Bankrate. Retrieved March 23, 2023, from https://www.bankrate.com/banking/how-to-choose-a-bank/

Gobler, E. (2023, March 20). What happened to Silicon Valley Bank? Investopedia. Retrieved March 23, 2023, from https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676