Banking
April 6, 2023

Responding to the Risks of Maintaining Deposits Above FDIC Limits in Smaller Banks

Responding to the Risks of Maintaining Deposits Above FDIC Limits in Smaller Banks
Banking
April 6, 2023

Responding to the Risks of Maintaining Deposits Above FDIC Limits in Smaller Banks

Ignacio Gassó
Co-founder & Chief Operation Officer
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The recent failure of Silicon Valley Bank has brought to light some important issues in the banking industry, especially for smaller banks. For the first time in a long time, depositors were at risk of losing their funds, and this risk was widely broadcast on social media. As a result, it was the first time that a bank run took place in the age of social media.

This event has changed the way people view the banking industry, and it has opened up depositors' eyes to the risk of maintaining deposits above the FDIC limits. While there are solutions to this problem, the main issue for smaller banks is that the public is now keenly aware of the risk, and they may not be well-informed about it.

This heightened awareness of the risks associated with maintaining deposits above the FDIC limits can be both good and bad for smaller banks. On the one hand, it may lead to more cautious depositors who are more likely to keep their deposits within the limits. On the other hand, it may also lead to depositors moving their funds to larger banks with a perceived lower risk.

Smaller banks can respond to this risk by providing education to depositors about the FDIC limits and other options for deposit insurance. They can also consider alternative funding sources, such as brokered deposits or FHLB advances, to diversify their funding and reduce the risk associated with concentrated deposits.

In conclusion, the failure of Silicon Valley Bank has changed the way people view the banking industry and has highlighted the risks associated with maintaining deposits above the FDIC limits. Smaller banks can respond to this risk by providing education to depositors and considering alternative funding sources. Overall, the industry is evolving, and it's important for banks to stay current with industry trends and adapt to changing conditions.

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