In the wake of failures at Silicon Valley Bank and Signature Bank and separate issues at Credit Suisse and First Republic, many Americans are asking the question: Is my money safe?
Lloyd Blankfein, the former CEO of Goldman Sachs said the answer is not black and white on "Fareed Zakaria GPS" Sunday.
"The answer is kind of a yes with an ellipsis," Blankfein said.
That's because the government took away the Federal Reserve's ability to issue a blanket guarantee of all deposits in the system, a power it utilized in 2008.
Instead, the central bank along with the Federal Deposit Insurance Corporation and the Treasury Department, have the power to guarantee deposits bank by bank if they find a systemic emergency.
Blankfein said the Fed is implying it will regard any bank run or event as systemic and use what authority it has, but it isn't able to issue a blanket guarantee in advance.
"I think you're able to rely on it," Blankfein said. "But there is a tail risk in that lack of absolute certainty."
Experts say in the wake of the bank collapses not to rush to withdraw money.
"I don't think people should panic, but it's just prudent to have insured deposits versus uninsured deposits," Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF, adding to make sure your bank is FDIC insured, which most are.
Each deposit account owner is insured up to $250,000 -- so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.
If you bank through a federally insured credit union, your deposits are insured at least up to $250,000 by the National Credit Union Administration, which, like the FDIC, is backed by the full faith and credit of the US government.
The future of banking
Zakaria added, "There are a lot of people who feel that this is in some way a bailout, and this is in some way one more example of capitalism for the poor and socialism for the rich."
Blankfein said the government wasn't helping out based on what groups of depositors were affected, but because of systemic risk for the entire banking system.
The expression that gets tossed around in these conversations is moral hazard -- meaning if these depositors are protected, "they and other depositors in the future won't be so careful where they leave their money." This could cause a repeat of the current crisis, he said.
Blankfein supported a policy change to raise the FDIC-insured limit.
"Do we want to make it the duty of depositors to do that kind of forensic accounting analysis on banks?" Blankfein said. "We don't make people do analysis of airplanes when we board them. We rely on the FAA. If it's certified, we get on them."
The difference between 2008 and now is the difference in assets, Blankfein said.
In 2008, the banks had "bad assets on their books," or assets that couldn't be valued at all -- think subprime mortgages that became worthless, he said.
The problem now is "people pulling out their deposits but the assets are, probably, in the long run good money, but they've suffered a loss of valuation in between," Blankfein said. He also added that banks are better capitalized due to reforms that took place after 2008.
If the current model of banking stays in place, most Americans will think their money is only safe in too-big-to-fail banks, Blankfein said.
"Is it a virtue that America has well over 4,000 banks? Most big countries have a few big banks with branches," Blankfein said, adding that the US has banks that specialize in certain industries, like SVB with tech.
"I wouldn't necessarily want to experiment and withdraw that," Blankfein said. "But if we incentivize people to only go to the biggest banks, then the sector will consolidate beyond what people think is an attractive thing."
Blankfein said that markets predict the Fed will raise interest rates by 0.25%, and that it "would be OK to stop there."
Massachusetts Democratic Sen. Elizabeth Warren, a member of the Senate banking committee, slammed Federal Reserve Chair Jerome Powell on Sunday, saying he has failed at two of his main jobs, citing the raising interest rates and his support of bank deregulation.
The Fed is set to announce its latest decision on its benchmark interest rate at the end of its next two-day meeting on Wednesday.
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