The Federal Deposit Insurance Corporation wants to raise business payment account deposit insurance limits after three recent bank collapses.
Each account holder is entitled to $250,000 in FDIC insurance. However, the government guaranteed deposits in excess of that amount after Silicon Valley Bank and Signature Bank went under. In the wake of the Great Recession, it also offered temporary, unlimited deposit insurance for accounts that did not generate interest.
FDIC Deposit Insurance Reforms
The FDIC claims that there would be more benefits than costs to financial stability from increasing deposit insurance for business accounts, which would provide substantial additional coverage to business payment accounts without extending equivalent insurance to other depositors.
The FDIC warns that providing greater protection for business accounts could be misused by individuals, trusts, and estates that aren’t actually company accounts, so lawmakers would need to define eligible accounts very precisely.
Other potential reforms proposed by the FDIC in the report include fully insuring all deposits providing unlimited coverage and keeping the current system in place with the possibility of increasing the cap from the current $250,000 per account.
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Large Bank Deposits Are Uninsured
Guaranteeing depositors access to their money in the event of a bank failure, preventing runs on banks, and bolstering economic security are all goals of deposit insurance.
According to the FDIC, the percentage of uninsured deposits in the United States was higher in 2021 than at any time since 1949.
The organization reports that considerable portions of a bank’s funding, notably at the largest banks by assets, come from deposits that are not insured.
Bank runs occurred so swiftly, it even startled FDIC officials. The paper highlights the impact of social media on the swift failure of banks and warns that this trend may make future bank runs more likely.
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