Market volatility in response to recent banking news may have you wondering what—and why—it’s been happening. Get more insights and learn what you can do when the markets are a bit bumpy.
Markets move in cycles. They go up. They go down. And sometimes it’s a little bumpy for a while.
Sharp market declines in response to events like the collapse of U.S.-based Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank of NY (SBNY), coupled with concerns in the European banking sector, grab headlines. And it might make you worry or even question your savings and investing strategies.
These recent bank failures have created some concern and confusion about what—and why—they happened. Their downfall appeared to catch regulators and markets off guard and triggered fears about the global banking sector.
In response, U.S. policymakers (the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corporation) quickly announced emergency measures to provide liquidity to the U.S. banking system and protect all depositors’ assets in SVB and SBNY.
Here’s what’s happened.
Banks don’t often fail because there is strong regulation and oversight of the industry by U.S. government agencies. The Federal Deposit Insurance Corporation (FDIC), protects U.S. customers’ bank balances up to certain limits.
Silicon Valley Bank (SVB), Signature Bank (SBNY), and Silvergate Bank, were unique when compared to the broader banking industry. Their deposits were concentrated in the now-struggling technology and crypto-currency sectors. They also held an unusually large amount of fixed-income securities which had fallen significantly in value as the Fed started to push up interest rates—a plan designed by the Fed to address inflation.
As market conditions became more challenging, clients at these particular banks began withdrawing their deposits, forcing the banks to realize their fixed income losses.
It forced Silvergate Bank to voluntarily shut down while federal and state regulators stepped in to close down SVB and SBNY. U.S. policymakers then implemented a plan to cover all deposits held in the two banks they closed and to establish a new credit line to support any additional troubled banks.
Tip: If you have concerns, check with your bank to understand the limit of your deposit protection. Most individual depositors within banks and credit unions are insured up to $250,000, which is generally sufficient for most people. If needed, you could establish a second account at another bank or credit union.
What we see happening next.
- These events could mean markets are volatile for a while until the market finds a comfortable rhythm. We’ve been here before—and we’ll likely be here again.
- Expect that the Fed will continue to work toward taming inflation. Once things calm down in the banking sector, our economists anticipate a return to interest rate hikes, with potentially smaller movements than originally planned.
- The current chair of the Federal Reserve, Jerome Powell, acknowledged the possibility of an unemployment jump because of higher interest rates. We don’t expect him, or the Fed leadership, to change course unless they see a sustained drop in the cost of goods and services.
What can you do when there’s market volatility?
What can feel like a big moment at the time, over the long term, may be remembered as a blip on the radar screen. While you can’t control the markets, you can spend your mental energy on facts you can control to help ease your worries, understand volatility, and diversify your long-term savings.
If you’re 10, 20, or 30 years away from retirement, read what to do when there’s market volatility.
If you’re near retirement, learn about what you can do to help protect your savings during market volatility.
Our commitment to our customers
Over our 140-year history, including 80+ years working with retirement plans, we’ve had significant experience in navigating periods of volatility and uncertainty. We’re committed to staying focused on our mission to help customers make progress toward financial security through various market conditions.
We continue to be financially and operationally stable.1 The core financial levers of Principal®—capital, liquidity, and the quality of our balance sheet—enable us to manage through periods of economic volatility, putting us in one of the strongest financial positions in our history.