How banks operate
Claire Taylor
Specialist in helping ???? UK & US ???? expats achieve their financial goals | Chartered Financial Planner | Investment Advisor Representative
It is important to note that banks are not required to maintain a 100% cash reserve to cover all deposited funds.
Therefore, if you have millions in the bank, it's unlikely you could walk in and withdraw all your money in cash.
Banks are also able to invest more money than they have in their reserves.
For example, they could invest $10 in securities for every $1 they have. This is how they generate profits.
SVB invested their deposits and more in long-term bonds, which earned them interest. When interest rates increased, they offered their clients returns that were higher than the bank's earnings.
However, when the value of their bonds began to decline, it affected their cash flow.
They tried to recover by selling assets, but once the news spread, customers began withdrawing their funds. Unfortunately, SVB did not have enough 'cash on hand' to reimburse their clients' deposits.
If you are concerned about being affected by the SVB collapse, it is recommended to seek advice from a financial advisor.
It is important to note that deposited funds are considered assets of the bank and are at risk if the bank fails.
While using a bank is a common way to avoid investment risks, it's worth considering that banks generate revenue by investing YOUR money.
Wouldn't it be preferable to invest your own money yourself?