What happened
Many stocks in the financial sector were plunging on Monday in the aftermath of the collapse of SVB Financial (SIVB.Q) late last week. And it wasn't just bank stocks taking a beating -- brokerage giant Charles Schwab (SCHW 0.08%) was down by nearly 20% at 10:30 a.m. ET.
So what
The short answer is that Schwab is falling because of fears related to the collapse of SVB. Specifically, there are significant fears of depositors pulling billions of dollars out of regional banks, which could lead to the need to sell held-to-maturity assets at a steep loss.
Schwab has $7.38 trillion in client assets and is (for good reason) mostly thought of as a brokerage firm. However, it's important to realize that the company also operates an FDIC-member bank (Charles Schwab Bank) and offers a full suite of banking products, such as checking and savings accounts, home loans, and more.
Now what
Schwab took steps to calm investors, stating that client outflows so far in March hadn't accelerated from February and pointing out that clients have the ability to move money to higher-yielding cash alternatives (like Treasury bonds) at Schwab. The firm also said that 80% of client deposits were insured by the U.S. government -- for context, SVB held 95% uninsured deposits. And it also assured investors that it has plenty of liquidity and that there is "very little chance" it will need to sell any held-to-maturity securities prior to their maturity dates, unlike SVB.
While this seems like a bit of a knee-jerk reaction to the SVB situation, it's wise to expect volatility in Schwab (and other bank stocks) for some time, and investors who don't want to deal with rapid swings may want to wait it out on the sidelines.
