IS YOUR BANK SAFE?
Your bank may not be as safe as you think. Most people assume the money they have in their bank account is safe because in the United States, bank accounts are insured by FDIC up to $250,000. Presently the FDIC insurance fund doesn't have enough funds to insure all accounts covered by FDIC should there be multiple bank failures at the same time. In addition to this disclosure there is another hidden concern about the safety of your money on deposits.
Banks for sometime have been purchasing derivatives what I consider to be risky investments. An understanding of derivatives can be found at https://www.investopedia.com/terms/d/derivative.asp. Derivative investments by banks are considered off balance sheet liabilities and won't appear on the banks balance sheet unless they suffer a paper loss and are "Mark to Market" wherein they must report the unrealized loss amount on their balance sheet as a liability.
According to The Office of the Comptroller of the Currency in the first quarter of 2022 a total of 1,291 insured U.S. national and state commercial banks and savings associations held derivatives. Four large banks held 89.0 percent of the total banking industry notional amount of derivatives. Investopedia estimates the size of the derivative market to be around One Quadrillion dollars worldwide.
No big deal right, your savings are insured and you can get your money out if the bank fails, right? Maybe not. A few years ago the US Supreme Court ruled that you are no longer defined as a "depositor" of a bank, you are now defined as a "unsecured creditor". In 2008 when the "to big to fail banks" began to fail, our politicians in D.C. came to the rescue and passed the "Dodd Frank Act". Deep within these few thousand pages the Act disclosed how you as an "unsecured creditor" would be paid when and if your bank failed. To your disadvantage you as an "unsecured creditor" of your bank would be next in line to be paid behind the derivatives. What chance do you think you have receiving even a penny after the derivatives are paid? Oh! I forgot to mention that these derivatives are "party and counter party contracts" so just about all the banks in the world with derivatives are "tied at the hip" so to speak and when one fails it may start a domino effect that will bring chaos and bank failures to all banks.
What Derivative exposure does your bank have? You can find out if your bank has derivatives and how much exposure to them by visiting this link https://www.usbanklocations.com/bank-rank/derivatives.html.
Only time will tell what banks will or won't fail. My hope is that everything will work itself out and looking back at this time in history we learn that there was nothing to fear.