Banking Economics Financial Crisis

There were two sizable bank failures over the last three days. Silicon Valley Bank in Santa Clara, Ca was taken over by the FDIC on Friday and Signature Bank was closed by New York state regulators Sunday.

I have received a number of emails from clients and friends asking if their bank is safe and or if this portends a broader series of bank failures.

Here is some general information that may be helpful.

My personal recommendation is not to conduct your main banking business with the big money center banks. I know it is a hassle to move banks, but I would not bank with JP Morgan Chase, B of A, Wells Fargo, Citibank, U.S. Bank.

I would move my banking to a smaller local or regional bank. Why? Because there is bank policy now in place that says if your bank is in trouble, the bank can actually take some of your deposits and convert them to bank stock without so much as a “bye your leave”. Yes, you read that right. This is called “Bail in” policy.

And Bail in policy only applies to banks with assets in excess of $250 billion.

The banking industry walks this very precarious line which is why the term “bank run” strikes instant fear in the hearts and minds of bankers. You deposit money with a bank and they lend it out.

Not all of it, but a percentage, say 70%. That means the bank has a “Loan to deposit ratio” of 70%. If more than 30% of the depositors want their money, the bank is in trouble.

Is your bank safe? One key indicator is the loan to deposit ratio. There are other factors, but this one is an important indicator.

Get a copy of your bank’s financial statement, you can find a copy in the bank’s annual report, which you should be able to find online. Look in the section called Assets and find the total amount of loans. Then go to the Liabilities section and find the total deposits. Then it’s simple math to determine the bank’s loan to deposit ratio.

Here’s an example. Wells Fargo curently has deposits of $1,380,000,000 and loans of $943,000,000 (numbers rounded). They have a loan to deposit ratio of 68% (higher than several other big banks but in an acceptable range in my opinion.) I can consider a loan to deposit ratio over 80% problematic.

The lower the better.

As to the current banking scene in the U.S. You can tell the government is freaked. The Biden administration met on Sunday and came up with a new plan to lend troubled banks money so the banks could cover any withdrawals.

On top of that, the President is going to address the nation this morning. He will have already spoken by the time you read this, but I have no doubt he is going to assure the nation in no uncertain terms that the U.S. banking system is safe. Sound. Your deposits are safe. That anyone who wants to withdraw their deposits. Deposits, even in excess of $250,000 will be honored.

Will this calm what has become a growing crisis?

We’ll see. It’s a PR world.

John Truman Wolfe.

Final note: If you want me to do an in depth review of your bank’s safety send me an email to I charge for this service – it takes some time and expertise. I charge $250 for a bank safety analysis and $375 if you also want a recommendation for an safer bank.

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