Note from BSW’s CEO regarding Schwab

April 3, 2023

Safety and Security of Client Assets

For BSW, the safety and security of client assets are of paramount importance. Consequently, the strength, stability, and financial condition of our custodians (Schwab and Fidelity) are critical. Following Silicon Valley Bank’s (SVB’s) collapse, banks and financial intermediaries have come under deservedly heavy scrutiny.  SVB’s demise was precipitated by losses on its bond portfolio following the spike in interest rates over the past year. And just as sharks can smell blood in the water from miles away, short sellers and market forces try to identify and exploit similar situations in other banks or companies. By and large, this is a good thing. As in SVB’s case, price discovery via the invisible hand punishes corporate weakness or poor decision-making.

Assessing Schwab’s Financial Condition and Risks

Recently, Schwab has been the subject of speculation and concern, as it also has a large portfolio of low-coupon bonds that are underwater. If these bonds, which are held both in Schwab’s Available-for-Sale (AFS) and Held-to-Maturity (HTM) portfolios, were marked to market or sold, Schwab’s Tier 1 equity ratio would be negative. This sounds dire, which is why it has generated buzz and is popular clickbait. However, unlike SVB or other banks that ran into trouble, Schwab’s loan-to-deposit ratio is a mere 10% (lower risk). For comparison, SVB’s loan to deposit ratio four times greater (higher risk).

Meanwhile, Schwab’s uninsured deposits (ie, customer cash deposits exceeding the $250K FDIC insurance limit) are only 20%. SVB’s uninsured deposits were nearly 90%. The chart below shows uninsured deposit ratios of major, publicly-traded banks. In the chart, the higher the ratio, the higher the potential risk to those deposits; and the lower the ratio, the lower the potential risk to those deposits. If Schwab’s ratio were included in the chart, its ratio would be the lowest (ie, the least potential risk to those deposits).

Finally, Schwab custodies $7.5 trillion of client assets, which generate substantial profits. Schwab’s 2022 gross profits were nearly $21 billion. Of the 21 US banks and 11 European banks monitored by JPAM, Schwab’s return on assets for 2022 would be the third highest. In light of all this, we remain confident in Schwab’s strength, stability, and financial condition; and as a custodian for BSW client assets.

BSW’s Monitoring and Risk Mitigation Measures for Schwab Investments

Confidence, however, should not and does not suggest complacency. BSW’s Investment Group continues to monitor Schwab closely. Our Advisors have worked closely with our Portfolio Managers and Client Service Managers to identify cash balances in excess of FDIC limits and to invest those funds in position-traded money market funds for additional security (and yield). BSW’s COO Matt Samek and I have spoken with our primary Schwab contacts regarding these items — to separate fact from fiction and to understand Schwab’s position and planning. For more detailed commentary from Schwab on these matters, see this WSJ article (here), this CNBC interview with Schwab CEO Walt Bettinger (here), or this summary of Schwab’s asset protection (here).

One of the most beneficial elements of working with BSW is the “sleep at night factor.” So if you have any additional questions, please do not hesitate to contact us. We are here to help!

David Wolf, CEO








This blog is created and authored by BSW Wealth Partners, Inc., a Public Benefit Corporation (“BSW”) and is published and provided for informational purposes only.  The opinions expressed in the blog are our opinions and should not be regarded as a description of services provided by BSW or considered investment, legal or accounting advice.  Certain information sited is from third-party sources and while we believe the information to be accurate and true to the best of our knowledge, we cannot guarantee its accuracy as there may be certain unknown omissions, errors or mistakes.  Use of third-party information, including links, is in no way an endorsement by BSW.  The views reflected in the blog are subject to change at any time without notice.
Nothing on this blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product or investment strategy is suitable for any specific person.  Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BSW), or any non-investment related content, made reference to directly or indirectly in this blog post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Not all BSW clients will have the same experience within their portfolio(s) and certain topics discussed in this blog may not apply to all clients or investors.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BSW.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  BSW is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.  A copy of BSW’s current written disclosure statement discussing our advisory services and fees is available upon request.