More Money Doesn’t Make You Better at Managing Your Finances
More Money Doesn’t Make You Better at Managing Your Finances
Posted March 17, 2023 by Ben Carlson
There were a lot of surprising details that came to light from the Silicon Valley Bank fiasco.
It was surprising how quickly a bank run took hold for such a large institution.
It was surprising how quickly the bank’s customers fled one of their most trusted partners.
It was surprising how seemingly little oversight this now systemically important bank had.
It was surprising the Fed was kind of asleep at the wheel in terms of understanding how their interest rate hikes would impact the financial sector.
And it was surprising how many individuals and businesses were so bad at cash management.
Matthew Klein put together this chart that shows interest-bearing versus noninterest-bearing deposits at Silicon Valley Bank as of year-end 2022:
Klein explains:
As late as the end of last year, only half of SVB’s U.S. deposits ($82 billion) even paid any interest! For some reason, large and ostensibly sophisticated entities were still lending almost $80 billion to SVB at the end of 2022 even though their claims were unsecured and earning nothing.
That is bizarre. Even before I realized how many of those deposits earned zero interest, when the possibility of uninsured business deposits getting wiped out first presented itself last week, my first question was: why would any company have had that kind of unsecured exposure to a bank in the first place? After all, there are plenty of alternatives to bank deposits, especially for entities with money and even a tiny amount of sophistication.
Only half of the $82 billion in deposits earned any interest on their money.
And according to Felix Salmon, nearly 94% of those deposits were uninsured, meaning they were more than $250,000:
That’s a lot of money with no money management behind it.
To continue reading, please go to the original article here: