Watch out everyone, two weeks in a row for the newsletter!

You know what they say, right?

The only way to start a streak is to start with number one and number two (I have no idea if that’s a saying – I just made it up and thought it sounded profound…).

Okay, enough of the niceties. Let’s talk about bank failures.

Unless you’ve been hiding under a rock, you know that a couple of weeks ago Silicon Valley Bank failed.

What does this mean?

Basically, it means more depositors asked for their money to be withdrawn than the bank had funds to distribute.

A classic “run” on the bank.

If you were following the story, there was a lot of anxiety in the business world because of this for two reasons:

1. When banks fail all the funds are frozen until the government can come in and get things under control; and
2. Anyone that had money in any individual account over $250k was at risk of losing everything over $250k as that is the max amount that is insured.

Thankfully all anxiety was relieved when liquidity was provided to businesses to meet payroll, etc., and ALL deposits were guaranteed, no matter the amount.

This brings us to tip #1 of the day – if you have over $250k in deposits in any one financial institution, you may want to consider spreading that out (you only get one $250k per institution).

And remember, this ONLY applies to deposits in the bank. Investment accounts, etc. aren’t insured in this way.

As a result of the bank run, I started getting questions about what the bank could do in such a situation to create liquidity to pay for the run.

If you’ve ever watched “It’s a Wonderful Life” you know how difficult this can be (best Christmas movie EVER, by the way).

There’s a classic run on his savings and loan and he tells everyone “I don’t have your money here. It’s in Fred’s house, and Jimmy’s house, and Suzy’s house…”.

This, I think, caused some people to be worried that the bank might call them up and demand the full payment for the mortgage on their house.

And, while that kind of makes sense, you can rest easy.

The bank is NOT allowed to call the mortgage on your house simply to create liquidity.

There are really only three ways they can do this:

1. You stop paying your mortgage (i.e. foreclosure);
2. You transfer your house to someone or something else without approval (think rental house to an LLC); and
3. You die and your house goes to a non-family member (this is federal law – and the truth is, here, if you keep paying they aren’t going to do anything about it).

Bank runs are often created out of an irrational fear.

Hopefully some of that fear has been reduced today.

And, when it comes to your house, there is NOTHING to fear.

Have a great week!

Cheers,

Christopher Small
CMS Law Firm LLC

PS – if you want some nuts and bolts estate planning and probate info you can see all of it on my YouTube channel – http://www.youtube.com/c/CMSLawFirmLLC

And PPS – if you need help with estate planning or probate the easiest thing to do is click the link and book a time to chat – https://cmslawfirm.com