Comments Regarding Silicon Valley Bank and Charles Schwab & Company

Comments Regarding Silicon Valley Bank and Charles Schwab & Company 

What Has Happened?

• Silicon Valley Bank (SVB) was a “bank of choice” for many venture capital and startup companies to deposit their cash balances.
• SVB used those deposits to make loans and purchase U.S. Treasurys to earn interest income.
• As the economic environment has become more challenging, many companies that banked at SVB began to draw down on their cash deposits.
• SVB was forced to sell Treasury securities at a $1.8 billion loss to meet withdrawal requests from customers. This loss required the bank to raise capital and raised a “red flag” with its customers and as a result, withdrawal requests increased.
• The resulting “run on the bank” required the FDIC to shut the bank down last Friday
• Late yesterday, the U.S. Treasury Department, Federal Reserve, and FDIC stepped in with decisive action to guarantee all deposits with SVB.

Are My Investments Safe at Schwab?

Management at JMG has utmost confidence in our custodian, Charles Schwab & Company.

• Schwab has a broad base of high-quality customers across multiple lines of business, capital well in excess of regulatory requirements, a high-quality and relatively small loan book, and a conservative investment portfolio that is 80% comprised of securities backed by the U.S. Treasury and various government agencies.
• Client securities are segregated from Schwab’s portfolio of securities in compliance with the SEC’s Customer Protection Rule. This is a legal requirement for all broker-dealers. In the unlikely event of insolvency of a broker-dealer, these segregated assets are not available to general creditors and are protected against creditors’ claims. Client securities are not comingled with assets at Schwab Bank.
• Schwab does not have any direct business relationship with Silicon Valley Bank or Signature Bank, nor do they have exposure to any direct credit risk from either.
• In February, customers entrusted Schwab with more than $41.7 billion in net new assets – their second-strongest February ever following their strongest January ever. This growth has continued in March, with daily net new assets of over $2 billion per trading day month-to-date, including Thursday and Friday of last week.
• Collectively, more than 80% of client cash held at Schwab Bank is insured dollar-for-dollar by the FDIC. According to S&P Global Market Intelligence, that percentage is among the highest of the top 100 U.S. banks. As a comparison, the banks in the news the last few days have between 2% and 20% of their deposits insured.
• As a further safeguard, Schwab has access to over $80 billion in borrowing capacity with the Federal Home Loan Bank (FHLB), which is an amount greater than all our uninsured deposits. That helps provide the firm significant access to liquidity, so money is there when clients need it.
• No Schwab money market funds have exposure to Silicon Valley Bank.

If you have any questions, please contact your JMG advisor.

Important Disclosure

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by JMG Financial Group Ltd. (“JMG”), or any non-investment related content, made reference to directly or indirectly in this writing will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this writing serves as the receipt of, or as a substitute for, personalized investment advice from JMG.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  JMG is neither a law firm, nor a certified public accounting firm, and no portion of the content provided in this writing should be construed as legal or accounting advice.  A copy of JMG’s current written disclosure Brochure discussing our advisory services and fees is available upon request.  If you are a JMG client, please remember to contact JMG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. JMG shall continue to rely on the accuracy of information that you have provided.

To the extent provided in this writing, historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your account holdings correspond directly to any comparative indices.  Indices are not available for direct investment.

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