Full Bailout of Silicon Valley Bank and Signature Bank Depositors Leaves Uncertainty About FDIC Limits
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Full Bailout of Silicon Valley Bank and Signature Bank Depositors Leaves Uncertainty About FDIC Limits

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The FDIC’s and Federal Reserve’s decision to cover fully deposits at both Silicon Valley Bank (SVB) Bank and Signature Bank leaves some uncertainty about whether banks’ deposits are fully insured above $250,000 per depositor per class of deposit. President Biden did not clarify the issue when he spoke this morning to allay depositors’ concerns, even though he explicitly promised that deposits are protected.

There is an issue of moral hazard here. FDIC insurance limits are well established. Should depositors who ignore these well-established limits, and keep deposits above those limits to curry favor with senior bank executives and get certain privileges – as was the case with SVB - get their own rules?

But, still more important than the moral hazard issue here at the moment, is what happens when and if there is another 5 or 10 or 100 bank failures. With SVB Bank and Signature Bank, the FDIC invoked the banks as “systemically important” in order to provide the unlimited depositor protection that it is providing.

Can depositors assume that every bank going forward is going to be systemically important and that they’ll be made whole? Is there a number of banks that is hit when the “systemically important” designation can no longer work or a size of a bank? And, then what is the rule for credit unions and the NCUA?

Since this can only be changed by an act of Congress, and until such act occurs, we continue to recommend that depositors stay within applicable FDIC and NCUA limits.

A great primer on FDIC insurance can be found here.

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Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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  • GWL

    March 17, 2023

    Maybe the government will only bailout the “woke” &”green new deal” banks and the message is clear: money in these 2 classes of banks are safe so only follow Democrats agenda for your banking. Not saying Americans believe this is right, but does Biden want the US to have a USCB. “US Centralized Bank like China? What say you? Just curious.

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