After the news around Silicon Valley Bank, Credit Suisse and Signature Bank a while ago, the downfalls have left some banking customers with concerns about the safety of traditional banking and the vulnerability of their savings. One of the main reasons for bank collapses is financial mismanagement, where banks take on too much risk or engage in speculative investments that fail. It’s risky business says NI Property Girl, Eimear Gourley.
So why do banks collapse in the first place? External factors, such as economic downturns or geopolitical events, are some of the main reasons. When a bank goes bankrupt, customers may lose their savings, and even if they are protected by deposit insurance schemes, there may still be significant losses.
A collapse can lead to a loss of confidence in the banking system, which can lead to a run on other banks and broader economic consequences.
My advice is that savers need to consider the safety of their deposits and take steps to protect their savings by diversifying them across different types of assets, such as precious metals or property, or investing in low-risk assets such as government bonds or mutual funds.
Current inflation and interest rates are another reason why you might be thinking about alternatives to banks when it comes to where to put your savings. When inflation exceeds the interest rate on your savings account, your savings may lose value over time – that’s when it’s time for a change.
So, diversifying savings across different types of assets such as stocks, bonds, or property may offer higher returns and greater protection against inflation and low-interest rates. Additionally, savers may choose to consider opening accounts with multiple banks to reduce the risk of losing all their savings if one bank were to collapse.
Now I’m not saying that all banks are bad, not at all – but by being aware of the risks involved and taking a proactive approach to your finances, you can protect your savings and achieve your financial goals.
In recent years, regulators have been pushing for more bail-in policies to reduce the burden on taxpayers in the event of a bank failure. Therefore, the likelihood of a bail-in may increase as regulators continue to implement these policies.
A bail-in is different from what we saw in 2008 which were the banks being ‘bailed out’. Most of us will have heard about banks being ‘bailed out’ so what’s the difference?
A bank bailout is a situation in which a government or central bank uses public funds to rescue a bank that is experiencing financial difficulties. Typically, a bank bailout involves injecting capital into the bank or providing guarantees for its assets or liabilities. The aim of a bailout is to prevent a bank from collapsing and causing wider economic disruption or systemic risks.
On the other hand, a bail-in is a process in which a bank’s creditors, including depositors and bondholders, are required to take losses in order to recapitalise the bank. Under a bail-in, the bank’s shareholders and creditors are required to absorb losses before any public funds are used to support the bank. The aim of a bail-in is to ensure that the costs of a bank’s failure are borne by its stakeholders rather than taxpayers.
My mantra? Pay attention to your money and where you leave it. Remember that it is your money in the bank and ultimately, if you think it might be time for a change, then you have to discuss this with your financial advisor and do what is right for you. Panicking never helped anybody but it certainly helps to be educated about your options. After all, the more you know.
