What happens to a securities account and investments in the event of a bank failure?

Recently, the questionWhat happens to the securities account and investments in the event of a bank failure?This is due to growing concerns about spillover effects bank failure In the United States, also because of the recent Credit Suisse crisis, which has raised a lot of doubts about it Security of stock accounts and other investments.

In a moment of uncertainty like the current one, it is not surprising that investors and small savers worry about their fate. investments And yours stock account In case bank failure. With increasing distrust of banks, going back to the 2008 financial crisis, it is important to know information on how to do this. Protect your investment.

In this article we will explore the possibilities Consequences of bank failure on stock accounts, BTPs, ETFs, and mutual fundsProviding useful and up-to-date information to protect your investment.

We’ll also look at Guarantees provided by the Italian government For savers and any safe money in case of bank failure.

What happens to the securities account in case of bankruptcy?

when it comes to b bank failureMany investors worry about their fate stock account Based on Other investments. A stock account is an essential tool for holding and managing financial products, such as stocks, bonds, ETFs, and mutual funds. However, the credit institution is the sole custodian of these instruments, but not the owner. But what happens to the stock account if the bank fails?

in bankruptcystock account Do not participate directly In the liquidation procedure, whereby A assistant account separate from the current account.

However, if your portfolio includes stocks and bonds issued by the same bank, you may be at risk.

In general, therefore, the shares owned within stock file They will come fully returned to the customer.

What happens to BTPs if the bank fails?

Likewise in the case of stocks BTPs (Multi-Year Treasury Notes)Government bonds issued by the Italian Treasury are safe in case the bank fails. Again, the securities are contained in the stock portfolio and ownership of the investments remains with the investor. in practice, The bank acts as an intermediary only.

When a bank fails, there are two possibilities: either it will be liquidated or another bank will buy it out. In either case, the liquidator or the purchaser will take responsibility for the clients. However, the customer’s experience may be very different depending on which path is chosen.

In case filtering, the bank ceases to exist and all its assets are sold to satisfy creditors. the customer deposits guaranteed by the state up to a maximum of 100,000 eurosAs we will explain in the last paragraph. Customers may have to wait a while before getting their money back, but eventually it will be returned and the securities account will have to be transferred to another bank. However, in some cases, you may lose some of the financial benefits or services provided by the defaulting bank.

In the event of a bankrupt bank being taken over by another bank, customers of the original bank will become customers of the bankrupt bank and will have to accept the terms, interest rates and services offered by the new bank.

What happens to ETFs and mutual funds when a bank fails?

But what happens to investments in Mutual funds and exchange traded funds (Exchange-traded fund) If the bank fails? The safety of mutual funds and ETFs is a matter of great importance to investors.

In fact, the structure of mutual funds and ETFs is designed for Ensure maximum safety for investors. These financial instruments are issued and managed by asset management companies (Sgr), which are separate from the Custody Bank. This means that the assets of the fund are separate from the assets of the manager and the bank.

In practice, behind every unit purchased from a mutual fund or ETF is a basket of securities guarded by an independent custodian bank who ensures the existence and safety of the securities.

Therefore, in the event of bankruptcy of the bank managing the fund, the Investors’ assets remain safe.

It is important to stress that the value of an ETF or mutual fund can vary according to the performance of the basket of securities that make it up. For this reason, the value of these financial instruments can never go to zero, unless all the companies that issue the benchmark go bankrupt. However, this event is very unlikely.

Bottom line, investors can rest assured that their investments in mutual funds and ETFs are safe. Thanks to the separate structure of the Custody Bank and the guarantee of the existence of the securities, their assets are safe even in the event of bankruptcy of the bank managing the fund.

How to transfer the securities file from a bankrupt bank to another bank

the Transfer of deposits from one bank to another It is a very possible and simple process and consists in transferring the financial instruments held by the original bank to another bank. However, there are a few things to keep in mind.

As already mentioned, in the event of liquidation of a bankrupt bank, it is imperative Complete and sign the transfer form Indicating the number and address of the original securities file. On the other hand, if the bankrupt bank is taken over by another person, the transfer of the securities file is automatic and the customer does not have to do anything.

It is important to note that transferring securities files under different names may entail an increase in tax conditions, as the bank will make an actual sale of the securities in order to determine the taxable capital gain, if the holders of the old bonds and the new accounts do not match. This means that if the share was a gain, you would need to pay the tax immediately, whereas if it was a loss, you would have a deductible capital loss.

for any concern Shared money transferHowever, it is important to know that there may be a problem if the new bank does not have agreements to put the money on file that expires. In this case, it will be necessary to liquidate the funds in the old file and look for counterparties that the new bank will sell to. However, this will result in potential new entry fees.

What happens to escrow accounts if the bank goes bankrupt?

opening a Deposit account (free or restricted) involves the risk that the bank will not be able to return the funds deposited in the event of bankruptcy. However, these risks are mitigated by the commitment of EU banks to join the Deposit Guarantee Scheme Interbank Deposit Protection Fund.

If the bank fails, then Fitd guarantees deposits of up to €100,000 per deposit holder. At the end of 2022, the fund’s endowment amounted to approximately €3.3 billion. To make a comparison, if the fund had intervened in 2017 to protect the deposits of Venetian Popolari’s clients, it would have had to shell out €10 billion, forcing the banking system to take on the amount not covered by the fund.

In conclusion, the solution to protect liquidity from a possible systemic crisis scenario, although unlikely, could be to distribute deposits among different banks and avoid excessive exposure to bank bonds.

This investment diversification strategy can help reduce the risk of losing all of your savings if one bank or an entire banking system fails. Additionally, choosing to invest in a variety of financial products, such as stocks, bonds, mutual funds, and money market instruments, can help reduce the overall risk of your investment portfolio.