The US and global banking sectors have witnessed significant volatility and uncertainty over the last several days. Initially, losses at the Silicon Valley Bank caused investor panic, effectively resulting in a “run on the bank” as customers rushed to withdraw their deposits. This, in turn, caused additional panic and amplified the liquidity issues as even more customers started withdrawing deposits. These developments raised concerns about the stability of the financial system and its impact on the US and global economies and have resulted in the US Federal Reserve Bank (and its counterparts in other countries) to act quickly and decisively to protect depositors and restore confidence in the banking system. Within this context, the Economic Planning Board for the United States would like to share the following perspectives with the Jamat:
- The US regulatory framework remains strong, and the government has shown a desire to fully protect bank depositors.
The Federal Reserve Bank, together with the Federal Deposit Insurance Corporation (FDIC) and the US Treasury, have significant experience in such matters after having previously intervened to restore confidence and liquidity in the US and global banking system during the Great Financial Crisis of 2008.
While the problems experienced by each of the banks may differ, the recent banking issues resulted in the government taking swift measures to safeguard all US bank deposits and ensure the ongoing support of money and credit to the wider economy. In instances, the regulatory authorities have worked aggressively behind the scenes to engineer mergers and other commercially driven solutions to ensure the protection of deposits and restore confidence in the broader banking system.
It should be noted that the FDIC and the NCUA (National Credit Union Administration) already insure deposits of up to $250,000 per depositor, per institution and per ownership category at member institutions. This includes protections for depositors in small and large banks and credit unions across the United States. Additionally, through appropriate planning, account titling, and structuring, amounts larger than $250,000 may be covered under FDIC and NCUA insurance. IRAs and other retirement or brokerage accounts may be insured as well – up to $500,000 – by SIPC (Securities Investor Protection Corporation) member institutions. In the instances of bank failures over the last couple of weeks, the US government has extended protections to ALL deposits held by customers at the failed banks, including deposits well above the $250,000 threshold.
- Continue to embrace best practices
During periods of uncertainty, it is always wise to look past the headlines, not react in panic, and make thoughtful decisions. The US regulatory framework is strong, the banks and credit unions remain regulated, and deposits in them are already insured up to $250,000 by the FDIC. The recent issues have not impacted depositors thus far, including those with deposit balances above the FDIC limits. As such, it is advised that everyone should continue to hold deposits at FDIC insured banks and credit unions to seek the maximum insurance protection offered by the FDIC, NCUA, and SIPC. Please consult with your financial advisor to determine how you might best plan for the maximum protection offered by the relevant institutions.
- Remain vigilant and mindful during this time.
Economic activity within the US (and globally) remains highly interconnected. Current disruptions in the banking sector have heightened concerns about spillover effects into other sectors and the possibility of a general slowdown of the economy in the coming months. This economic uncertainty may cause:
- Tighter lending standards, reduced credit availability, and a higher cost of credit for personal and business loans.
- Weakness in the commercial real estate sector, as lending becomes more challenging and project valuations are moderated.
- Lower access to credit and shaky consumer confidence resulted in weaker consumer spending, particularly for discretionary items, which could affect retail businesses.
- Softening of the labor market, as layoffs in the technology and banking sectors may spread to other industries.
- Potential easing of general inflationary pressures as the general demand for goods and services weakens.
- Market volatility for some period, as the equity and financial markets continue to adjust to recent events and potential spillover effects.
- Exercise prudence and make thoughtful decisions.
During this time, we should reflect on Mawlana Hazar Imam’s recent guidance from December 2022, in which he encouraged the Jamat – irrespective of our financial status – to “live prudently” in light of “economic volatility” and to “come together within your families and within your Jamat in facing this situation.” With the benefit of this guidance during this period of increased economic uncertainty in the US and globally, the Jamat is advised to:
- Remain financially prudent and act in a careful and considerate manner when making investment decisions.
- Where possible, maintain funds on hand to cover six months of personal expenses in cases of reduced incomes.
- Hold off on unnecessary purchases.
- Carefully manage business cash flows and household budgets.
- Diversify your financial holdings.
- Reduce your debt burdens, including credit card debt.
- For assistance or advice on any business or personal finance matters, please contact the ACCESS Help Line 1 (844) 55-ACCESS or visit the ACCESS online portal.
Ya Ali Madad.
For additional information regarding deposit coverage, please refer to the following links: