Report Says U.S. Banks Are Missing 'Hundreds of Billions of Dollars.' Find Out Why

What happened

According to The Economist, half a trillion dollars have left the U.S. banking system in the past year. It blames a combination of factors, including the way money market funds work and the Federal Reserve's repurchase and reverse repurchase agreements (repos and reverse repos).

So what

Without getting too far into the details, the report suggests that changes to the reverse repo system have sucked hundreds of billions of dollars out of the banks. What this means for us as consumers is that it increases the pressure on small and mid-sized banks who are struggling for deposits in the wake of the Silicon Valley Bank failure.

Repos and reverse repos are a type of collateralized short-term loan in which one party sells securities to the other, with an agreement to buy them back at a higher rate by a set date. In 2013, the Fed introduced its own reverse-repo facility. Essentially, money market funds are currently using the Fed's reverse repo facilities rather than banks.

"The scheme was a seemingly innocuous change to the financial system's plumbing that may, just under a decade later, be having a profoundly destabilising impact on banks," said the leading business publication.

Now what

The past few weeks have been a rollercoaster ride for almost anyone with money deposited in a bank account. More so for businesses and other organizations with large sums of money that might fall outside the FDIC's thresholds.

The collapse of Silicon Valley Bank sparked fears of contagion. Signature Bank also failed, and a group of big institutions deposited $30 billion with First Republic in an attempt to shore up its reserves. Shortly after SVB's failure, a technical glitch at Wells Fargo caused paychecks to go missing, adding to the market jitters.

Wells Fargo fixed its issues, but wider questions about the banking system remain. What's worrying about the Economist report is that it points to a systemic problem that has not been solved and could still pull banks under.

That said, if you're worried your bank might fail, know that are a lot of consumer protections in place. Importantly, customers have not yet lost any deposits. Even with SVB, where a large proportion of its deposits exceeded the FDIC insurance limits, authorities stepped in to make people whole.

All the same, if you have sizable amounts in a single bank, take these steps to make sure you'd be protected against failure:

• Understand FDIC insurance limits: FDIC insurance covers $250,000 per depositor, per insured bank, per account ownership category. A single account and joint account are separate ownership categories. This means if you have $250,000 in a personal savings account, and $200,000 in a joint account, all your money would be covered.
• Consider opening a new account: If you have sizable deposits with a small bank, check out our list of the safest banks in the U.S. Also, most accounts are FDIC insured, but if yours is not, it might be time to switch to another bank.