New York (CNN) In the wake of failures at Silicon Valley Bank and Signature Bank and separate issues at Credit Suisse and First Republic, many Americans are asking the question: Is my money safe?
Lloyd Blankfein, the former CEO of Goldman Sachs said the answer is not black and white on “Fareed Zakaria GPS” on Sunday.
“The answer is sort of yes with an ellipsis,” Blankfein said.
That’s because the government took away the Federal Reserve’s ability to issue a blanket guarantee for all deposits in the system, a power it used in 2008.
Instead, the central bank, along with the Federal Deposit Insurance Corporation and the Treasury Department, has the authority to guarantee deposits bank by bank if they find a systemic emergency.
Blankfein said the Fed is suggesting it will consider any bank run or event systemic and use the authority it has, but it is unable to issue a blanket guarantee in advance.
“I think you’re able to trust that,” Blankfein said. “But there is a tail risk in that lack of absolute certainty.”
In the wake of the bank’s collapse, experts say not to rush to withdraw money.
“I don’t think people should panic, but it’s just smart to have insured deposits versus uninsured deposits,” adds Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF, to ensure your bank is FDIC insured, which most are.
Each deposit account holder is insured up to $250,000 – so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.
If you bank through a federally insured credit union, your deposits are insured up to at least $250,000 by the National Credit Union Administration, which, like the FDIC, is backed by the full faith and credit of the US government.
The future of the bank
Zakaria added: “There are a lot of people who feel that this is somehow a bailout and this is somehow another example of capitalism for the poor and socialism for the rich.”
Blankfein said the government was not helping based on which groups of depositors were affected, but because of systemic risk to the entire banking system.
The term being thrown around in these conversations is moral hazard — meaning that if these depositors are protected, “they and other depositors in the future won’t be so careful about where they leave their money.” This could cause a repeat of the current crisis, he said.
Blankfein supported a policy change to raise the FDIC-insured limit.
“Do we want to make it the duty of depositors to do this kind of forensic accounting analysis on banks?” Blankfein said. “We don’t have people analyze airplanes when we board them. We depend on the FAA. If it’s certified, we get on them.”
The difference between 2008 and now is the difference in assets, Blankfein said.
In 2008, banks had “bad assets on their books,” or assets that couldn’t be valued at all — think subprime mortgages that became worthless, he said.
The problem now is “people pulling out their deposits, but the assets are probably in the long run good money, but they’ve suffered a loss of valuation in between,” Blankfein said. He also added that banks are better capitalized due to reforms that took place after 2008.
If the current banking model remains in place, most Americans will believe their money is safe only in too-big-to-fail banks, Blankfein said.
“Is it a virtue that America has well over 4,000 banks? Most major countries have a few major banks with branches,” Blankfein said, adding that the U.S. has banks that specialize in certain industries, like SVB with technology.
“I don’t necessarily want to experiment and withdraw it,” Blankfein said. “But if we encourage people to only go to the biggest banks, then the sector will consolidate beyond what people think is an attractive thing.”
Blankfein said markets are predicting the Fed will raise interest rates by 0.25% and that it “would be OK to stop there.”
Massachusetts Democratic Sen. Elizabeth Warren, a member of the Senate Banking Committee, on Sunday hit out at Federal Reserve Chairman Jerome Powell, saying he has failed two of his most important jobs, citing the rate hikes and his support for banking deregulation.
The Fed is set to announce its latest decision on its benchmark interest rate at the end of its next two-day meeting on Wednesday.
CNN’s Aileen Graef contributed to this story.