Keep Calm & Keep Your Money In The Bank
Yes, these certainly are trying times with the Coronavirus crisis. But that doesn’t mean you should drain your bank account. Or that you should stuff every single penny under a mattress in your home. The FDIC (under its deposit insurance which is fully backed by the United States government) will guarantee funds up to $250,000. This applies across per depositor, per insured bank, for each account ownership category.
So there’s no need to panic
On Monday, March 16th, the various federal bank regulatory agencies released a statement. In it, they encouraged banks to use the Federal Reserve’s “discount window” so they can continue supporting households and businesses. The discount window provides short-term loans to banks. It also plays an important role in supporting the liquidity and stability of the banking system. By providing ready access to funding, the discount window helps depository institutions manage their liquidity risks efficiently and avoid actions that have negative consequences for customers. Thus, the discount window supports the smooth flow of credit to households and businesses.
Another thing to note is that Big Banks are extremely well capitalized
The Fed have stated that big financial institutions have $1.3 Trillion in common equity. And that they hold $2.9 trillion in high quality liquid assets on their balance sheets.
With the COVID-19 pandemic, downward effects have clearly been witnessed on the Stock Market with an overall drop of the DOW reaching 32 percent in just the past month. What we are noticing is that volatility of the Market will ebb and flow with daily news about the spread of the virus. What we do not know is whether the bottom of the US stock market has been reached. And this is because only time can tell us that. Even as the Fed keeps lobbying counter measures to stabilize the financial situation on a whole.
For the time being, large Banks as well as many smaller regional banks have all agreed to temporarily suspend stock buyback programs. This is a move calculated to maintain the adequate capital they require for loans and other daily operations.
Likewise, HUD (the US Department of Housing & Urban Development) has agreed to waive foreclosures to help people during this crisis. This measure is much like what they did in 2009 after the financial meltdown caused by the mortgage industry. The key takeaway here is that people shouldn’t fear (1) banks are running out of cash and/or (2) the US government will take away their homes.
It’s vital that we all remain calm.
And not do anything rash where our money in the bank is concerned.