Asset Protections at Brokerages

yogibearbull

Schwab has an easy-to-understand link on asset protections with the SIPC, additional insurance and the FDIC. Details are similar at other major brokerages, e.g. the Fidelity links.

There are lots of concerns about asset protections after 3 recent bank failures - Silvergate Bank, SVB Bank (#2 biggest failure in the US history), Signature Bank (#3 biggest failure in the US history). Treasury Secretary Janet YELLEN further muddied the current rescue situation by saying that in future, excess deposits may be protected at systemically-important-banks (SIBs) upon presidential determination, but not at smaller community banks. Ironically, deposits at the 2 failed banks under government operations now seem to have have unlimited deposit insurance.

Schwab https://www.schwab.com/legal/account-protection
Fidelity1 https://www.fidelity.com/why-fidelity/safeguarding-your-accounts
Fidelity2 https://www.fidelity.com/learning-center/trading-investing/safeguarding-your-cash

Baseball_Fan

Thanks for posting that YBB

sma3

Thanks for links.

It is ironic that the "world's second most secure Bank... ie SVB ( first is the Fed) just filed for bankruptcy

LewisBraham

To me the weak link at brokers and banks isn't necessarily the FDIC or SIPC, but the formal agreement to undergo arbitration in the event of problems that they make you sign before opening an account. If anything goes wrong, the arbitration system is a disaster for consumers. That said, the FDIC and SIPC have a limited amount of funds. In a true widespread collapse, they would probably run out of those funds.

yogibearbull

@sma3, SVB Financial was the holding company for the SVB Bank. So, this is the bankruptcy filing the holding company that also had some minor brokerage and asset management businesses.

SVB Bank was taken over by the Feds/FDIC. The government-run SVB Bank is now among the safest and with the best/unlimited deposit protections.

https://www.cnbc.com/2023/03/17/svb-financial-seeks-bankruptcy-protection.html

sma3

@yogibearbull

You are correct. I also read that technically an FDIC insured bank cannot go bankrupt.

msf

Technically that is true. An FDIC-insured bank is ineligible to file for bankruptcy under the bankruptcy code. "Instead, regulators seize insolvent or unsound banks or thrifts and give the Federal Deposit Insurance Corporation (FDIC) the authority to resolve them ... almost always ... through a receivership." However, a bank's parent holding company can file for bankruptcy, as SVB Financial has done.

See 11 U.S.C. §§ 109(b), (d) (2006) (stating that banks are ineligible for bankruptcy, so that neither the bank nor the bank's creditors can place the bank in bankruptcy). [However,] bank holding companies can file for bankruptcy in the United States, and many of the largest bankruptcies on record have been bank holding companies. See ... Washington Mutual.

Why Banks Are Not Allowed in Bankruptcy (footnote 2)

11 U.S. Code § 109
SVB Financial bankruptcy filing

msf

SVB Bank was taken over by the Feds/FDIC. The government-run SVB Bank is now among the safest and with the best/unlimited deposit protections.

Let's watch our redundant letters here (Silicon Valley Bank and SVB Bank).

Silicon Valley Bank (SVB) was taken over by the FDIC. In turn, the FDIC created Silicon Valley Bridge Bank (SVB Bank, or SVBB) to hold all the assets (including all the deposits) of SV Bank. As far as depositors are concerned, there is no longer any SV Bank.
https://www.jdsupra.com/legalnews/silicon-valley-bridge-bank-and-5653787/

majick

YBB, Thanks for the Informative & detailed Post with links.

I was worried about the limits of SIPC & FDIC plus what to do under these scenarios.

Fwiw... I've been following Jennifer's (RiA) Diamond NestEgg YouTube FREE ChnL
...SIPC is covered after 13 min on video & can be fast-forwarded or dragged with a mouse.
Hope it helps here on many other investing subjects she also covers.
Thanks.

sfnative

Based on extensive first-hand experience I'd say that compelled arbitration isn't a disaster for consumers (maybe excepting the restrictions on access to class actions). Most cases filed in court go through arbitration anyway (at least they do around here), and that leads to a final award or settlement in something way, way over 90% of all claims.

LewisBraham

@sfnative This summarizes and links to the three-part expose the NYT did on arbitration in 2015: https://citizen.org/news/epic-nyt-expose-tells-in-depth-story-of-how-forced-arbitration-denies-our-rights/