Good morning ! This is for a withdrawal – A sentence that banks do not understand what they receive from their customers, under penalty of not being able to return all of their funds to depositors. Apart from the US Federal Reserve (fed) meter of wind 25 billion dollars on the table to stop the contagion linked to bankruptcy of the Bank of Silicon Valley (SVB), it is time to focus on the protection of bank deposits.
The FGDR: protector of deposits in France
If you are a customer of a French bank, you should receive information each year aimed at protecting your bank deposits. This e-mail or letter of which you are the recipient reminds you that your funds are (in principle) protected up to $100,000 per depositor and per bank.
This protection is ensured by a dedicated body, the Deposit and Resolution Guarantee Fund (FGDR), whose purpose is to guarantee to depositors of return their funds in the event of default one or more banking establishments.
To date, the FGDR has nearly 500 members and is registered to cover almost all of the assets deposited in the country’s banks. With the exception of regulated savings accounts such as the Livret A and the Livret de Développement Durable et Solidaire (LDDS), the balances of which are directly guaranteed by the State.
Why should bank account balances be guaranteed?
In an ideal world, every euro deposited in the bank would be immediately recoverable, and no institution would have to suffer the risk of panic or bank rushas the bank would be able to immediately release their funds to all of its customers.
Or, banks invest the money you entrust to them. The Livret A and the LDDS are used, for example, to finance construction programs or to help support innovative businesses.
It is also very common for the bank to invest and place your capital. Silicon Valley Bank (SVB) did just that, investing in 1% US Treasuries when director rates were negative. An investment which, at the time, appeared to be risk-free.
More In a context of general interest rate hikes, no one wants to buy back its 1% bonds from the SVBwhile bonds newly issued on the market are much more profitable (4 or 5%).
As a result, the bank, even if it does not lose its customers’ money, is not able to return it to them immediately. It’s an obvious liquidity problem. Quite naturally, the bank’s customers then wanted to recover their deposits as quickly as possible in order to avoid suffering from this lack of liquidity, which precipitated the establishment’s downfall.
Bank resolution mechanisms: a good solution?
To avoid contagion from the financial sector, the authorities on my implementation of its “resolution” mechanisms which allow tostem financial crises Before these come to learn disproportionate consequences.
However, the financial institution with a banking license in France must contribute to the FGDR, which functions as an insurance class and which will use the quotes submitted by members to cover the failure of one of the three.
Or, such may suffer from a size problem: The funds collected by the FGDR are simply not enough to ensure the success of its mission in the event that a major institution fails.
In 2021 all of the funds raised by the FGDR amounts, according to its activity report, to €6.1 billion. This represents approximately 0.5% of French bank deposits.
It is therefore It is likely that the FGDR will be able to stem the bankruptcy of a large or silver banking institution…bearing in mind that the coverage provided by the FGDR is limited to €100,000 per banker and per depositor.
There is a single European resolution fund whose objective is to have, at the end of the year, funds equivalent to 1% of European bank deposits. This fund could come to help punctually in the event of bankruptcy of a French bank. But it’s a safe bet that, In case the situation requires the intervention of European funds, our national banks are not serious about their deathEuropean aid would be reduced in many States and, GOODit could not save the system.
So be careful!
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The FDIC: cell that protects bank deposits in the United States
There Federal Deposit Insurance Corporation (FDIC) works in a relatively similar way to our French FGDR. This independent agency to disburse but protect US bank deposits. And it must do this by using the contributions paid by banking establishments.
You have to admit to the FDIC some success. In place after 1934, it intervened by taking over names to allow bank customers not to see their deposits bought by a competitor and not to lose a penny in the transfer operation.
This being, This mechanism only protects depositors up to $250,000 and the itself did not recognize the failure in 2009the date on which the FDIC demands payments of several years of contributions in advance from its members in order to stay afloat.
As a last resort, the Fed
As we saw above, Existing resolution mechanisms are not enough.
The Fed is well aware of this and this is certainly the reason why it has just announced a $25 billion bank relief package In order to allow them to face this complicated period.
In order to stem the risks of widespread panic and a major financial crisis, the fed and the FDIC just announced the price of measures to cover all deposits placed on the books of SVB and Signature Bank.
Alas, you go back to the magic printer don’t get rid of the Federal Reserve is not likely to put an end to inflationwhich is itself the consequence of the unreasonable money printing of recent years.
Fight against inflation by increasing the risk of jeopardizing the economy, which will then have to be put under the oxygen of money printing again. It is a vicious circle from which we are not guaranteed to emerge unscathed.
Unfortunately, there is no certain answer to this. Our lives have a complicated period which imposes a rigorous risk management which necessarily pass through diversification of capital across multiple assets and asset classes (stocks, real estate, cryptos). At any rate, smooth your entry price by opting for the DCA Could be a good decision.
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