Comments Regarding Silicon Valley Bank and Charles Schwab & Company
What Has Happened?
- Silicon Valley Bank (SVB) was a “bank of choice” for many venture capital and startup companies to deposit their cash balances.
- SVB used those deposits to make loans and purchase U.S. Treasurys to earn interest income.
- As the economic environment has become more challenging, many companies that banked at SVB began to draw down on their cash deposits.
- SVB was forced to sell Treasury securities at a $1.8 billion loss to meet withdrawal requests from customers. This loss required the bank to raise capital and raised a “red flag” with its customers and as a result, withdrawal requests increased.
- The resulting “run on the bank” required the FDIC to shut the bank down last Friday
- Late yesterday, the U.S. Treasury Department, Federal Reserve, and FDIC stepped in with decisive action to guarantee all deposits with SVB.
Are My Investments Safe at Schwab?
Management at JMG has utmost confidence in our custodian, Charles Schwab & Company.
- Schwab has a broad base of high-quality customers across multiple lines of business, capital well in excess of regulatory requirements, a high-quality and relatively small loan book, and a conservative investment portfolio that is 80% comprised of securities backed by the U.S. Treasury and various government agencies.
- Client securities are segregated from Schwab’s portfolio of securities in compliance with the SEC’s Customer Protection Rule. This is a legal requirement for all broker-dealers. In the unlikely event of insolvency of a broker-dealer, these segregated assets are not available to general creditors and are protected against creditors’ claims. Client securities are not comingled with assets at Schwab Bank.
- Schwab does not have any direct business relationship with Silicon Valley Bank or Signature Bank, nor do they have exposure to any direct credit risk from either.
- In February, customers entrusted Schwab with more than $41.7 billion in net new assets – their second-strongest February ever following their strongest January ever. This growth has continued in March, with daily net new assets of over $2 billion per trading day month-to-date, including Thursday and Friday of last week.
- Collectively, more than 80% of client cash held at Schwab Bank is insured dollar-for-dollar by the FDIC. According to S&P Global Market Intelligence, that percentage is among the highest of the top 100 U.S. banks. As a comparison, the banks in the news the last few days have between 2% and 20% of their deposits insured.
- As a further safeguard, Schwab has access to over $80 billion in borrowing capacity with the Federal Home Loan Bank (FHLB), which is an amount greater than all our uninsured deposits. That helps provide the firm significant access to liquidity, so money is there when clients need it.
- No Schwab money market funds have exposure to Silicon Valley Bank.
If you have any questions, please contact your JMG advisor.
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