The likelihood of IB and Schwab bank runs?

M

Maverick2608

The stock price of Schwab and IB declined quite a lot during the two days of the SIVB meltdown.

Why will Schwab and IB not experience a bank run like SIVB?

Why might they experience a bank run?

Keep it factual and to the point please and let numbers speak louder than words.

Thank you.
 
First of all Schwab and IB are not banks. Second, their business model is different. They are not directly investing in SVB; they are agents who facilitate investments in SVB so they should be isolated from SVB. Not really sure why IB's shares would decline because of this. And not even sure why the four largest banks and brokerages like JP Morgan and Bank of America would be affected. Their shares dropped even more than IB's.

SVB is just a local Californian bank. And it's a very specialized bank that's almost exclusively invested in the high tech. and IT industry. Before this, nobody's even heard of this bank. Its market cap is 6.27B, comparing to JP Morgan's 393.38B and Bank of America's 242B, it's a drop in the bucket. Even IB's market cap is 33B and Schwab's eve larger at 101B. All of these banks and discount brokerages are well diversified in all segments of the business and variety of market sectors. I have money with IB and I am not withdrawing. Why would I need to withdraw? What am I going to do after I withdraw my money? I need to trade.

People just need to chill.
 
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TheDawn said:
First of all Schwab and IB are not banks. Second, their business model is different. They are not directly investing in SVB; they are agents who facilitate investments in SVB so they should be isolated from SVB. Not really sure why IB's shares would decline because of this. And not even sure why the four largest banks and brokerages like JP Morgan and Bank of America would be affected. Their shares dropped even more than IB's.

SVB is just a local Californian bank. And it's a very specialized bank that's almost exclusively invested in the high tech. and IT industry. Before this, nobody's even heard of this bank. Its market cap is 6.27B, comparing to JP Morgan's 393.38B and Bank of America's 242B, it's a drop in the bucket. Even IB's market cap is 33B and Schwab's eve larger at 101B. All of these banks and discount brokerages are well diversified in all segments of the business and variety of market sectors. I have money with IB and I am not withdrawing. Why would I need to withdraw? What am I going to do after I withdraw my money? I need to trade.

People just need to chill.
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A brokerage can be exposed to a bank run if it relies on a bank or banks to hold customer cash and securities in custody. This is because a bank run can occur when depositors or investors lose confidence in a bank and rush to withdraw their funds all at once, causing a liquidity crisis for the bank. If a brokerage holds customer funds and securities with a bank, and that bank experiences a run, it could impact the brokerage's ability to access and use those funds and securities.
 
I don't think IB and Schwab engage in fractional reserve lending. And have not invested customer deposits in illiquid assets. Although you can never be sure.

So if a run occurs on them, they should be able to pay out every withdrawal.

The risk is if there is failures at the banks that hold the customer deposits, then you have to rely on FDIC, SPIC etc.

I haven't used IB in a while, they used to sweep your spare cash into short term money market funds to pay interest. These are supposed to be super safe AAA, but again who knows for sure.
 
Maverick2608 said:
because a bank run can occur when depositors or investors lose confidence in a bank and rush to withdraw their funds all at once,
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People that are afraid of this, are the main sponsors/donators/patreons of institutions.
 
ZBZB said:
If you have cash in IB you can buy a treasury etf or treasuries.
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But if you have a margin account instead of a cash account, it is my understanding that the ETF or treasury is not held in your name, but I may be mistaken?
 
Maverick2608 said:
But if you have a margin account instead of a cash account, it is my understanding that the ETF or treasury is not held in your name, but I may be mistaken?
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Securities are held at the Depository Trust company in street name. Not sure about a cash account. If a brokerage or bank goes bust you do not lose securities.
 
ZBZB said:
Securities are held at the Depository Trust company in street name. Not sure about a cash account. If a brokerage or bank goes bust you do not lose securities.
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By street name you mean the name of the brokerage? I am not sure you are right if the account is a margin account. Can anyone chip in?
 
Maverick2608 said:
A brokerage can be exposed to a bank run if it relies on a bank or banks to hold customer cash and securities in custody. This is because a bank run can occur when depositors or investors lose confidence in a bank and rush to withdraw their funds all at once, causing a liquidity crisis for the bank. If a brokerage holds customer funds and securities with a bank, and that bank experiences a run, it could impact the brokerage's ability to access and use those funds and securities.
More...

This is information from IB regarding account and investor protection of client funds deposited with it.

https://www.interactivebrokers.com/en/general/account-protection.php

https://www.interactivebrokers.com/en/general/security-investor-protection.php

https://ibkr.info/node/2012
 
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