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What Happens If Charles Schwab Goes Bankrupt?
What happens to client stocks, money, portfolio, and account investments if Charles
Schwab goes out of business/bankrupt? Is Charles Schwab in financial trouble and could it fail?
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Could Schwab Go Out of Business? Key Takeaways
• If Schwab were to close, there would be many protections in place for clients.
• Schwab runs several different businesses; the failure of one does not mean the others will fail.
• If needed, other financial institutions could take over Schwab's accounts, allowing them to continue without any issues.
Although it's very unlikely that Charles Schwab would face bankruptcy given its strong financial history, should it occur, customers would be well-protected thanks to several safety measures.
Multiple Companies
The Charles Schwab Corporation owns various businesses, including a bank that offers checking and savings accounts, a brokerage for self-directed trading, and another unit for portfolio management and investment advice. The collapse of one division would not necessarily mean the others would fail.
Charles Schwab Insurance
Schwab has insurance to protect the accounts it manages, stepping in if anything goes wrong. Bank accounts benefit from FDIC insurance, which covers at least $250,000 per account type. This government-backed insurance could increase its protection levels in certain scenarios. If Schwab Bank were to fail, depositors would be fully supported by the FDIC up to these limits and potentially more. Schwab’s FDIC certificate number is 57450.
Investment accounts, whether for trading yourself or managed by advisors, are protected by SIPC insurance up to $500,000 per account type, similar to how FDIC works. This insurance covers the quantity of shares, not their market value. For example, if you own 200 shares of Microsoft, SIPC ensures you keep these shares, not their price, which could drop to zero.
It’s important to note, SIPC does not cover foreign currency or futures positions at Schwab.
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Charles Schwab Additional Insurance
Schwab also has an excess SIPC policy that provides additional coverage after the standard SIPC insurance limits are reached. This extra policy covers up to $600 million across all Schwab accounts, which includes approximately 34 million investment accounts.
Types of Business Bankruptcy
In the U.S., where Schwab is based, there are two main types of business bankruptcy: Chapter 7 and Chapter 11. Chapter 7 results in the company closing down, while Chapter 11 allows for restructuring and continuing operation. Under Chapter 11, Schwab would largely continue as usual for its customers. Under Chapter 7, Schwab would close, and its accounts would likely be transferred to other financial institutions.
Both types of bankruptcy would involve FDIC or SIPC in the proceedings to protect customers' assets.
What Happens If Schwab Goes Bankrupt?
In the rare case of Schwab fully liquidating, both bank and investment accounts would be transferred to other financial institutions. Checking and savings accounts would move to another bank willing to take them, and investment accounts would find new homes at other brokerage firms. This process, common in the investment world, is usually smooth, such as when Schwab acquired TD Ameritrade.
In a Chapter 11 restructuring, Schwab would renegotiate some debts but remain in business, so there would be no need to transfer accounts elsewhere, although it could still happen.
Recommended Articles
Is Charles Schwab safe?
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Shareholders and Bondholders
The protections discussed apply to customers, not shareholders or bondholders. In a bankruptcy, these groups face different rules, with shareholders typically at greater risk than creditors.
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Updated on 7/5/2024.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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