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Bank deposits and the FDIC Deposit Insurance Fund – Silicon Valley Bank

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This week, a parade of Biden administration officials will ensure taxpayers don’t bear the financial burden of government guarantees that all depositors at two failing banks — Silicon Valley Bank (SVB) and signatories — will be insured. I tried to take the message home. Their funds are readily available.

On Monday, President Joe Biden swore Silicon Valley Bank account holders will now have “access to their money as of today,” and “small businesses across the country who need to have a bank there, pay their salaries, pay their bills, and keep their businesses going.” And Treasury Secretary Janet Yellen tried to assure Congress on Thursday that “our banking system remains healthy and Americans can be confident that their deposits will be there when they need them.”

Insured deposits exceed Federal Deposit Insurance Corporation (FDIC) endowment insurance, with depositor funds insured up to $250,000, and bank customers with accounts below the FDIC limit. The percentage is very small. The SVB reports that 94% of domestic deposits were uninsured and 90% of Signature Bank deposits were uninsured. According to S&P Global, this is well above the percentage held by the largest US banks (around 47%).

Biden said all of these depositors would be covered through the Federal Deposit Insurance Corporation fund, but said bank stock and bondholders would lose their investments.

Some of the projects covered are quite large. Roku, a company with about $1.9 billion in cash, SEC filing last week, said its $487 million deposit with the SVB was “mostly uninsured.” The rest of his $1.4 billion in Roku is “spread across multiple large financial institutions.” Roblox, an online video game company, was also disclosed in his March 10 securities filings.  About 5% of the company’s $3 billion in cash and securities, or $150 million, was held in banks. The company said in a filing that the bank failure “will not impact the company’s day-to-day operations.”

What is the Deposit Insurance Fund?

Financial institutions make quarterly payments to the Deposit Insurance Fund or “DIF”. The size of the fee is based on an assessment of the size and risk profile of the financial institution.

According to Greg McBride, Chief Financial Analyst at Bankrate.com, the account exists to pay back insured depositors in the event the financial institution fails.

“The fund works when the liabilities exceed the assets and the bank fails,” McBride said.

How much does the Deposit Insurance Fund currently have, and if more banks fail, will the Deposit Insurance Fund accumulate funds?

By the end of the fourth quarter of 2022, the DIF’s coffers had reached $128 billion, according to senior Treasury officials. This is “enough” to cover the customers of SVB and signing banks.

After the 2008 financial crisis, the 2009 DIF, which had to fund depositors at more than 100 failed financial institutions, was a $21 billion deficit and ended up with a cash infusion of $128 billion.

The economic hit to the DIF from the failures of SVB and Signature will depend on whether buyers can be found for the failed bank’s assets and the so far unknown sale price, McBride said. “The problem is not bad debt, but good assets are currently selling below par, so the damage to the DIF could be minimal,” McBride said.

In the case of the SVB, much of the deposit over the $250,000 insurance guarantee is corporate payroll, and companies often have other ways of managing their payroll accounts, such as special accounts or mechanisms with additional protection. said Professor J. Michael Collins, Public Relations Officer and Expert in human ecology and consumer and personal finance.

Florida Republican Senator Marco Rubio predicted on “CBS Morning” Thursday that “any American with a bank account could end up having to pay higher bank fees.” Rubio said banks can assess the fees they may incur from their customers for paying insurance guarantees. “People with small deposits who have nothing to do with the bank may pay higher fees as a result of one bank’s mismanagement,” Rubio said.

What’s next for the $250,000 cap and the Deposit Insurance Fund?

Rep. Blaine Lütkemeyer, a Republican, member of the House Financial Services Committee, and former banker, said: The federal government should temporarily insure all domestic bank deposits to increase confidence in the U.S. financial system. But at least for now, Lütkemeier is in the minority.

Goldman Sachs said Wednesday that it “does not expect Congress to act on deposit insurance” at this stage. “Some lawmakers from both parties have raised the possibility of guaranteeing all deposits or raising the cap, while others from both parties have voiced their opposition,” Goldman Sachs said. “Increasing deposit insurance without regulatory change appears politically difficult, but an agreement on regulatory change would significantly delay approval.”

What to do when liquidity exceeds $250,000

So how can individuals and businesses with more than $250,000 in liquidity protect their investments? Individuals are insured up to $250,000 per person, so for couples, a total deposit of $500,000 is covered by the FDIC. Depositors can also open accounts at multiple institutions, with each bank insuring him $250,000 per person, Collins said.

Some brokerage accounts are covered by the Securities Investor Protection Corporation, Collins said. There are also, somewhat controversially, custodial accounts that use certificates of deposit account registration services that can cover very large deposits.

“Combined, they have the potential to allow us to hold very large aggregate demand deposits if we need to,” Collins said, particularly for those with hundreds of thousands of dollars in liquid deposits. says it is always wise to speak with a financial advisor. Consumer confidence in the banking sector remains volatile and could continue for some time. But McBride said the main point customers should keep in mind is that “your money is safe and available.”

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