The news is flooded with reports of banks crashing and failing due to liquidation issues. It's a scary thought to lose all of your hard-earned money in a matter of seconds. So, how can you protect yourself from such a situation and keep your money safe? Let's dive into the banking system to understand what went wrong and how you can secure your assets.

First things first, when you deposit your money in a bank, it's not just sitting there idly. The bank uses your money to make money for themselves. They invest it, lend it, charge fees, maintain infrastructure, and keep reserves. Banks are businesses, after all, and they're always trying to make their money work for them.

Lending

Lending is one of the primary ways banks make money. They use your deposits to make loans to individuals, businesses, and governments. However, if the bank lends money to a risky borrower who cannot repay their loans, the bank's financial health can suffer. This was the primary reason for the liquidation issues.

Return on Deposits

Banks can also invest the money deposited by their customers in stocks, bonds, and other securities. This helps the bank earn a return on the deposits, which can be passed on to customers in the form of interest. Banks can charge fees for various services, such as ATM withdrawals, wire transfers, and account maintenance. These fees can generate revenue for the bank.

Reserves

Banks are required to keep a portion of the deposits as reserves to meet the demands of customers who want to withdraw their money. This ensures the bank has enough cash to meet its obligations. However, if a bank does not have enough cash on hand to meet its obligations, it may be forced to sell depreciated assets or borrow assets at higher interest rates. Higher interest rates can cause fewer loan borrowers, which will cause banks to lose money.

Why Do Banks Crash?

Now, let's talk about why banks can crash or fail to have money. Banks can crash due to poor lending practices, economic downturns, lack of liquidity, fraud, misconduct, and external shocks. During a recession, banks may experience a potential increase in loan defaults and a decrease in the value of their assets, leading to financial instability. External shocks are out of the bank's control, and they can significantly impact the bank's operation and financial health.

Protecting Yourself

So, how can you protect yourself and your assets in case of a bank crash? The best way is to utilize banks with Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance coverage and diversify your portfolio. FDIC insures deposits up to $250,000, while NCUA operates the National Credit Union Share Insurance Fund (NCUSF) that provides insurance coverage up to $250,000 per account. To protect your deposited money in the banks, you should seek banks that are insured, just in case of a bank failure.

Diversify, Diversify, Diversify

Lastly, diversifying your portfolio is crucial. When you put your money in the bank, it does not grow. Banks are using your money to help their assets grow, so you might as well invest/diversify. Investing in a mix of stocks, bonds, and other asset classes can protect you from bank failure and recession. It is important to still invest in cryptocurrency, although popularity has wavered, it is still an important asset to own.

I personally invest in BTC, ETH, and XRP by using the dollar cost averaging method. I believe strongly in these and with recent news of XRP winning its long case with the SEC, crypto should see a rebound. Bottom line: Don't put all your eggs in one basket and plan for your future. With that being said, I am not a financial advisor this is only information and should be used for educational purposes, do your own research, investing comes with risks. WAGMI, ALL THE BEST!!