Silicon Valley Bank’s deposit insurance couldn’t prevent a bank run because they may have introduced server risks that compound the situation. This article from Forbes examines the role SVB’s unique approach may have played (and why deposit insurance couldn’t help avoid) its collapse.
The FDIC insures deposits of up to $250,000, but it didn’t help Silicon Valley Bank avoid collapse. Part of the reason is that many depositors had well more than the insurance deposit limit amount invested at the bank. They rushed to move funds as perception of risk increased. That meant deposit insurance didn’t help much to prevent a bank run. Deposit insurance covers in the case of a collapse of the bank–to reimburse depositors–but it cannot prevent the collapse or the initial panic itself.
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The same goes with SIPC coverage. If it happens, SIPC protects the securities and cash in your brokerage account up to $500,000. The $500,000 protection includes up to $250,000 protection for cash in your account to buy securities.
Read more about SIPC coverage here.
Contact a financial professional or legal professional who is versed in financial matters, such as Werner Law Group.
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