https://dirtybubblemedia.substack.com/p/schwabs-shrinking-spread
After the collapse of Silicon Valley Bank and Signature Bank in mid-March, depositors and investors scrambled to identify and flee other troubled banks. One surprising target for panic was Charles Schwab, the well-known brokerage firm that also owns T.D. Ameritrade. Unlike the other names in the news, Schwab is not (at least on the surface) primarily a bank. Schwab’s primary services for its customers are brokerage, asset management, and investment products.
However, Schwab also quietly operates one of the largest banks in the United States, into which it sweeps customers’ brokerage account cash. The realization that Schwab, like other banks, had significant unrealized losses on its securities portfolio led to a brief panic that the company might meet the same fate as SIVB. However, Schwab issued a statement indicating that their institution would survive a run due to ample liquidity:
We have access to significant liquidity, including an estimated $100 billion of cash flow from cash on hand, portfolio-related cash flows, and net new assets we anticipate realizing over the next twelve months. We believe we have upwards of $8 billion in potential retail CD issuances per month, plus over $300 billion of incremental capacity with the Federal Home Loan Bank (FHLB) and other short-term facilities – including the recently announced Bank Term Funding Program (BTFP).
In an interview with the Wall Street Journal around the same time, Schwab’s CEO made the bold claim that they could pay out 100% of deposits without having to realize any losses on their securities portfolio:
“There would be a sufficient amount of liquidity right there to cover if 100% of our bank’s deposits ran off,” said Walt Bettinger, Schwab’s co-chairman and CEO, referring to the company’s banking unit. “Without having to sell a single security.”
While he was correct in the short term, Mr. Bettinger’s statement hints at the longer-term problems that Schwab now faces. Schwab has profited on the spread between near-zero interest deposits and higher interest securities, a strategy that accounted for nearly 25% of net revenues at the end of 2022. However, Schwab has been bleeding the low-interest deposits that made their current business model viable. As Schwab races to replace these funds with higher-interest alternatives, the company is dismantling one of the key foundations of its business model. While the future is uncertain, it seems likely that Schwab is going to have a pretty rough 2023…
Last updated: 2026-03-07 by automated standardization process