Key Takeaways

  • The US economy is strong.
  • The Fed may be forced to pause, slow the pace of tightening, or stop tightening monetary policy.
  • Inflation continues to moderate.
  • Investment grade bonds offer attractive yields ranging from 5- 6%.
  • US Treasury money market funds offer yields ranging from 4.2% to 4.5%.
  • The Fed announced that deposits at all US banks are insured, regardless of size.
  • Deposits of Schwab Bank are FDIC insured.

Silicon Valley Bank

Silicon Valley Bank failed on Friday, March 10, 2023. The bank was headquartered in San Francisco. It was a major lender to venture capital companies investing in technology companies.

The bank grew very quickly over the past year, and loan demand did not keep up with deposit growth. Therefore, the bank invested in US treasury and US government agency securities.

The primary reason the bank failed is a direct result of an aggressive Fed tightening policy. Over the past 11 months, the Fed raised the overnight Fed Funds Rate from 0% to 4.75%.

Higher interest rates cause bond prices to decline. In 2022, returns on intermediate and long-term bonds fell between -11% to -32% as the Fed raised interest rates.

Banks primarily invest in three areas: loans, US Treasury securities, and US Government Agency securities.

Venture Capital depositors of Silicon Valley Bank began moving deposits out of the bank. The bank was forced to sell $20 billion in treasury and agency securities, thereby creating a $2 billion loss. This caused the bank to fail.

In aggregate, falling bond prices created an estimated $620 billion in losses for all US banks.

Sunday evening the Fed announced that all depositors are insured without limit at all FDIC insured banks.

Typically, depositors are insured up to $250,000 per person/entity, per bank. The FDIC reserve fund holds $128 billion in reserves. The reserve is funded by annual premiums paid by banks. This is like a “life insurance policy” for banks. The FDIC will charge all banks a special assessment premium to recover any losses.

Charles Schwab

Schwab Bank is FDIC insured. This means deposits are guaranteed to be repaid by the Federal Reserve in the event of failure. Schwab brokerage is a separate entity from Schwab Bank. All of your brokerage assets custodied at Charles Schwab and are segregated in individual accounts in your name.

Your brokerage accounts are insured by The Securities Investor Protection Corporation (SIPC). SIPC protects against the loss of cash and securities, such as stocks and bonds, held by a customer at a financially troubled SIPCmember brokerage firm.


The US economy is strong. Last year the US economy created almost 400,000 new jobs per month. The economy created over 500,000 new jobs in January and another 311,000 new jobs in February. The unemployment rate is at 3.6%.

Inflation continues to moderate. Today the Consumer Price Index (CPI) rose 6.1% year-over-year, compared to its peak of 9.1% last July.

The Federal Reserve may be forced to pause, slow, or stop tightening monetary policy.

Equity markets typically rally following a Fed rate hike cycle.

After 15 years of extremely low bond yields, investors today can achieve 5-6% returns on investment grade bonds.

Investors with a low risk tolerance can now invest in US Treasury Money Market Funds, today offering yields ranging from 4.22% to 4.49%. These money market funds do not fluctuate in price.

Many astute investors are moving money out of banks into US Treasury Money Market Funds. We have done this for many investors over the past few months.