Charles Schwab has the liquidity to withstand a complete bank run, CEO says

• Charles Schwab has enough liquidity to survive a total bank run, CEO Walt Bettinger said.
• And the company wouldn't have to sell a single security, he told the Wall Street Journal.
• "We felt we had already prepared for this type of thing," Bettinger said.

Charles Schwab could continue operating even if it were to lose all of its deposits, CEO Walt Bettinger told the Wall Street Journal.

"There would be a sufficient amount of liquidity right there to cover if 100% of our bank's deposits ran off,"  he said. "Without having to sell a single security."

In the event of a total bank run, Schwab could collect interest on bonds it owns, borrow from the Federal Home Loan Bank, and issue certificates of deposit, he added.

In recent weeks, clients have actually been pouring more money into Schwab. From March 10 to March 16, the brokerage saw a $16.5 billion increase in core net new assets, even as the banking crisis spiraled from the US to Europe.

As the collapse of Silicon Valley Bank spread contagion fears to other regional banks and Charles Schwab, Bettinger previously has said the company is totally unlike SVB with brokerage and banking operations that are separate and both well capitalized.

Still, like SVB and many other banks, Schwab invested large amounts in long-term bonds, which have crumbled in value amid sharp interest rate hikes over the past year. 

By the end of 2022, Schwab had more than $11 billion in losses on its bond portfolio, compared to tangible common equity of just over $6 billion, according to the Journal.

But Bettinger said that Schwab has around $100 billion in cash flow on hand and the means to raise more than $300 billion via FHLB loans and the Fed's new liquidity program that was set up after SVB failed.

"Many times, when you're in a crisis, there's very little you can do," he said. "It all comes down to what actions you had taken in preparation for that. We felt we had already prepared for this type of thing."

Despite the recent inflow of client funds, Schwab's deposits shrank 17% last year to $366 billion.

Bettinger said that isn't because customers are leaving Schwab, but simply moving their money into money-market funds and high-yield investments within their accounts. 

"Clients aren't moving bank deposits out of Schwab," he said. "All they're doing is realigning their investments, as they should."