By John Robinson, Financial Planner (March 16, 2023)
This week, we sent two email messages to Fee-Only Planning Hawaii and Financial Planning Hawaii clients to proactively assuage concerns over the banking crisis in the wake of the Silicon Valley Bank (and Slivergate and Signature Bank) failure. Both messages have been posted to the FPH Blog:

How the Silicon Valley Bank Collapse Revealed a Dirty Secret About Corporate Cash Management

Should Rising Dividend Investors Be Worried About Their Regional Bank Stocks?

The gist of our critical insight is that the government was prudent to step in quickly to stabilize the regional banks and to save the companies (and the jobs of thousands of their employees) that were customers/depositors at SVB, but the decision to fully insure all deposits above the FDIC limits sends the wrong message to both banks and their corporate customers.

In our view, banks should not be permitted to bribe/blackmail corporate clients to hold corporate cash above the FDIC limits in return for more favorable lending terms, and corporate execuitives should be more responsible/accountable in managing millions (or billions) of dollars of liquid capital. Corporate depositors should have been required to pay some price for their recklessness in managing their companies’ corporate cash (e.g., 80% of deposits protected or a fine for holding so much shareholder capital in uninsured, non-government guaranteed deposits).

A potential solution moving forward may be to raise the FDIC coverage limit for corporate accounts.

John H. Robinson is the owner/founder of Financial Planning Hawaii, Fee-Only Planning Hawaii, and Paraplanning Hawaii.  He is also a co-founder of fintech software-maker Nest Egg Guru.