The past few weeks have been a tumultuous period for the financial sector. The collapses of Silicon Valley Bank (SVB) and Signature Bank were the second and third-largest U.S. bank failures in history, overshadowed only by the 2008 collapse of Washington Mutua. Just weeks later, Swiss bank Credit Suisse also collapsed and was bought by rival UBS.

While the FDIC stepped in to make SVB and Signature Bank depositors whole, questions still remain: particularly for high-net-worth individuals with significant funds deposited in regional banks. Typically, bank deposits are only insured up to $250,000. Amounts above that threshold are not federally insured. In the event the bank collapses without anyone stepping in to save it, depositors stand to lose hundreds of thousands of dollars. 

For wealthy individuals with liquidity demands, this is a major issue. Before this rocky period for banks, the risks of FDIC insurance being limited to $250,000 were not top of mind. However, with the general feeling of nervousness around the stability of regional banks, many high-net-worth individuals are beginning to explore alternative solutions that offer both liquidity and security. 

At LBMC, we’ve been receiving a lot of questions about what these solutions might look like. Today, we explore a financial product, a StoneCastle Federally Insured Cash Account (FICA). But first, let’s dig a little deeper into the reasons SVB and Signature Bank collapsed and outline the importance of FDIC insurance.

The SVB Collapse: What Happened

Silicon Valley Bank was the 16th largest bank in the nation and experienced rapid growth between 2019 and 2022 as the technology sector boomed. Deposits more than tripled in the space of just two years as many of the bank’s clients raised huge funding rounds. 

Reporting has indicated that SVB invested the majority of these funds in low-risk assets including U.S. treasury bonds. However, as the Federal Reserve rapidly raised interest rates in response to inflation, these bonds became less valuable. At the same time, many SVB clients were navigating the wider downturn in the tech industry and beginning to withdraw funds at a rate faster than the bank anticipated. 

After SVB disclosed it had realized major losses on its bond portfolio and announced plans to raise additional equity funding, a bank run was triggered, with SVB customers attempting to withdraw tens of billions of dollars in deposits overnight. 

Shortly after, the federal government stepped in, announcing that all depositors would be made whole, even on deposits in excess of the FDIC limit. This averted what many believe would have been a major financial crisis. However, the situation sent a chill through the wider financial markets, giving many investors, businesses, and high-net-worth individuals cause to question the position of their own banking partners. 

Why is FDIC Insurance Important?

The Federal Deposit Insurance Corporation (FDIC) provides insurance on funds deposited in certain types of bank accounts, including checking accounts, savings accounts, money market accounts, and Certificates of Deposits (CDs). 

Each account is insured for up to $250,000. If a bank fails and customers are unable to withdraw their funds, FDIC insurance kicks in, allowing customers to withdraw up to $250,000 of their deposits. Anything above that amount is not insured, unless regulators decide to step in to cover the excess, as they did with SVB. 

For most people, this isn’t an issue: your wealth is likely tied up in assets including your primary residence, mutual funds, bonds, and so on. But for high-net-worth individuals who require liquidity, the $250,000 threshold is an issue. While in this instance the FDIC stepped in to make depositors whole above the $250,000 threshold, there is no guarantee they would do so again in the case of future bank collapses. 

The solution lies in spreading funds across multiple bank accounts. However, without the right approach, this can become extremely complicated to monitor. Fortunately, financial products exist which simplify this process. 

How to Secure FDIC Insurance Above $250,000

LBMC partner StoneCastle’s Federally Insured Cash Account (FICA) offers high-net-worth individuals access to a cash account with significantly higher levels of FICA insurance than that offered by traditional financial institutions. 

The account, which can only be opened through a financial advisor, provides a competitive 4.05% APY on the first $1 million in customer deposits paired with $25 million of FDIC insurance (100x that offered by a traditional bank). The account is a cash account that provides depositors with full liquidity, allocating depositors’ funds across more than 900 banks in increments of $250,000. 

With an initial deposit requirement of $100,000, the StoneCastle FICA account represents a strong fit for wealthy entrepreneurs, business owners, and other high-net-worth individuals who are currently questioning the best place to store their wealth. 

LBMC: Your Trusted Advisors

At LBMC, our financial advisors are equipped to help clients––both existing and new––open a StoneCastle FICA account. 

Beyond that, our advisors are available to answer any wider questions concerning long-term financial planning, investment strategies, and protecting against downside risks. 

To learn more about how we can help you build a more secure financial future, contact an advisor today.