The collapse of Silicon Valley Bank (SVB) and takeover by Federal regulators sparked concern in the banking industry causing the DOW to lose 500 points early today (Wednesday). Jim Plagge, the CEO of Bank Iowa explains what happened, why it happened, and what impact this will have on Iowans.
In just 30 min you will have a better understanding of this topic than most of your neighbors!
SVB Crisis. What happened?
Plagge explains why record deposits in 2021 meant banks across the country were flush with cash. Cash they wanted to invest to get a return. SVB and other banks invested that cash into treasury bonds and mortgage-backed securities, which are considered safe investments. But with interest rate increases those bonds suddenly lost the value they once had.
Typically bonds losing their value isn’t a concern. US Treasury Bonds are backed by the Federal Government, so they will never disappear, as a stock might. But if a bank needs cash when bond values are low, a bank may be forced to sell them at a loss. Essentially, this is what happened with SVB.
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Are Iowa Banks Insulated From The SVB Crisis?
Plagge explained Iowans are more conservative than most, which means our state is more insulated from the kind of issues we see nationally. Well-managed banks didn’t see the same issues SVB suffered from.
Plagge also explained even though FDIC Insurance covers 250k that number can actually be increased if you talk to your banker and open new accounts. He also explained how opening accounts with your spouse can also increase that protection.
Plagge also explains why using local Iowa banks is still a very smart move, how that directly impacts Iowa businesses and home owners, and how it builds a stronger state, further protecting us from national challenges.