Recent upheaval in the banking industry brought new attention to the safety and security of deposits and investments. This blog is the first in a two-part series about the ways that bank and brokerage accounts are protected.

Over the last several weeks, we’ve heard more questions about the safety and security of banks, and bank deposits than any time since the Great Recession in 2008 and 2009. While many of us take for granted that the deposits in our bank will be there when we need them, bank failures remind us that there are limits to those guarantees. The questions we were asked generally fall into three categories:

• Do I need to be concerned about my deposits?
• How does deposit insurance work?
• Are there alternatives to deposits that still give me quick access to cash?

Understanding what makes a bank stable and secure
During the Great Recession, it was a credit crisis that toppled many banks. Specifically, easy access to credit for borrowers and lax underwriting standards for banks drove a housing bubble that, when it burst, collapsed several banks.

In March this year, the first bank to fall suffered a so-called “run on deposits” that had depositors seeking to withdraw more cash than the bank had on hand. This was fueled by the bank’s high concentration of deposits from one industry. The collapse of the first bank created a domino effect that led to two other large failures — together making up three of the four largest U.S. bank failures in history.

Understanding this is important when considering the stability of your bank. At CIBC Bank USA, for example, we have a diverse deposit portfolio. While we do hold significant deposits from commercial clients, we manage our exposure to avoid concentration in any industry or geography.

Banks like ours invest excess deposits to maximize our return. In at least one of the failures, the unrealized losses in the securities investments were significant, which contributed to sizable losses when the bank had to liquidate those holdings to respond to deposit withdrawals. In our case, unrealized losses in our securities portfolio are modest.

The benefits — and limits — of deposit insurance
Most banks in the U.S. are insured by the Federal Deposit Insurance Corporation, commonly known as the FDIC. In general, the FDIC insures up to $250,000 per customer, per lending institution, and the coverage applies to deposit accounts — checking, savings, money market and certificates of deposit, for example.

Many of our private banking clients hold significantly greater than $250,000 in deposits with us, so we are often asked if there are ways to extend deposit insurance coverage.

There are ways to maximize your deposit insurance within a single institution by leveraging different deposit categories such as single accounts, joint accounts, trusts or retirement accounts. It’s important to speak with your private banker to discuss your options and to ensure your accounts are set up appropriately.

Knowing your options
There are ways to extend your deposit insurance even further. Our bank participates in a network of banks that spreads your deposits across insured institutions, up to allowable limits per institution. This is helpful because your CIBC banker manages the process for you. In some cases, clients chose to open accounts at multiple banks on their own, but that can be time consuming.

For some clients, another option is investing in Treasury bills — often called T-Bills — which are short-term debt obligations backed by the US Treasury Department. T-Bills have a maturity of 12 months or less, so while they don’t provide immediate access to cash, they are more liquid that other options. T-Bills also typically earn higher interest than basic deposit accounts.

The bottom line
Overall, the U.S. banking industry is solid. However, we recognize the uncertainty the recent upheaval brings. If you are concerned about your deposit strategy, please reach out to your CIBC Private Banker or ask your CIBC Relationship Manager for an introduction to a Private Banker today.

Dan Sullivan is Head of U.S. Personal, Private and Digital Banking. With 25 years of experience, he has helped clients navigate through various opportunities and challenges. Dan and his team leverage a full suite of deposit and lending solutions as part of their clients’ overall financial strategy.