What do you know about bank deposits and the FDIC Deposit Insurance Fund

All week, a parade of Biden administration officials has sought to get the message across that taxpayers will not bear the financial burden of the government’s guarantee that all depositors in two failing banks — Silicon Valley Bank (SVB) and Signature Bank – their funds will be available to them immediately.

on monday, President Joe Biden pledged that account holders at Silicon Valley Bank “will be able to access their funds starting today,” and that includes “small businesses around the country that are banked there and need to file payroll, pay their bills, and stay open for business.” Treasury Secretary Janet Yellen sought to reassure Congress Thursday that “our banking system remains intact, and that Americans can feel confident that their deposits will be there when they need them.”

Guaranteed deposits extend beyond the FDIC fund insurance that promises depositors cash up to $250,000, and only a very small percentage of those bank customers will be covered under the FDIC cap. At SVB, 94% of domestic deposits were uninsured, while 90% of Signature Bank deposits were uninsured, according to a report by S&P Global Market Intelligence. That’s much higher than the percentage held by large US banks — about 47% — according to S&P Global.

All of those depositors would be covered by the FDIC fund, Mr. Biden said, though holders of stocks and bonds in banks would lose their investments: “This is how capitalism works,” Mr. Biden said.

Some great covered work. Roku, which has about $1.9 billion in cash, has been disclosed in a range SEC filing Last week, it said its $487 million in deposits with SVB were “largely uninsured”. Another $1.4 billion from Roku is distributed across several large financial institutions. Online video game company Roblox also disclosed securities on March 10 filing that approximately 5% of the company’s $3 billion in cash and stock assets, or $150 million, was held in the bank. The company said in its filing that the bank’s collapse “will not have an impact on the day-to-day operations of the company.”

What is a deposit insurance fund and how does it work?

Financial institutions pay quarterly into a Deposit Insurance Fund or “DIF”, and the size of their fees is based on an assessment of the institution’s size and risk profile.

Greg McBride, chief financial analyst at Bankrate.com, explained that the account exists to repay insured depositors when a financial institution fails.

“Where this fund comes into play is if a bank fails because its liabilities exceed its assets,” which may not ultimately be the case with SVB and Signature Bank, McBride said.

How big is the Deposit Insurance Fund now and will it get the money if more banks fail?

By the end of the fourth quarter of 2022, the Dubai Investment Fund had $128 billion in its coffers, which is “quite enough” to cover SVB and Signature Bank clients, according to a senior Treasury official.

In the aftermath of the 2008 financial crisis, DIF was in the red with $21 billion in 2009, when it had to provide money to depositors for more than 100 failed financial institutions, which ultimately led to a $128 billion cash infusion.

McBride said that the financial hit to the DIFC due to the collapse of the SVB and signing will depend on whether buyers are found for the assets of the failed banks, and what the selling price is, which is not yet known.

“Because the problem is not bad loans, but high-quality assets that are currently selling for less than their face value, the damage to the PE fund may be minimized,” McBride said.

In the case of SVB, many of the deposits over the $250,000 insurance guarantee were corporate payroll, and companies often have other ways to manage payroll accounts, including specialized accounts or mechanisms with added protection, said J. Michael Collins, professor. Public affairs and human ecology and expert in consumer and personal finance.

Republican Senator Marco Rubio predicted on “CBS Morning” Thursday that “every American with a bank account will have to pay higher bank fees.” Rubio said banks will be able to assess the fees that could come from the banks’ customers for paying their insurance guarantee.

“So you have people who are not related to this bank, who have small deposits, who are likely to pay higher fees as a result of mismanagement by a bank,” Rubio said.

What will happen to the $250,000 limit and deposit insurance fund in the future?

Rep. Blaine Lutkemere, a Republican who is a member of the House Financial Services Committee and a former banker, said that Politico The federal government should temporarily insure every bank deposit in the country to increase confidence in the American financial system.

But, at least for now, Luetkemeyer is in the minority.

Goldman Sachs said Wednesday that at this point, “we don’t expect Congress to act on deposit insurance.”

“While some lawmakers from both parties have raised the possibility of securing all deposits or raising the cap, other lawmakers from both parties have expressed their opposition,” Goldman Sachs said. “Increasing deposit insurance without accompanying regulatory changes seems politically difficult, but agreeing regulatory changes would slow approval significantly.”

What do you do if you have more than $250,000 in liquid assets?

So how can people and companies with more than $250,000 in liquid assets try to protect their investment?

Since individuals are insured for up to $250,000 per person, for a married couple, the $500,000 total deposit will be covered by the FDIC. Depositors may also open accounts at multiple institutions and still be insured for up to $250,000 per person, Collins said, per bank.

There are also brokerage accounts that will be covered by the Securities Investors Protection Corporation, Collins said. Although somewhat controversial, there are also custodian accounts that use a deposit account sign up service that can cover very large deposits.

“Using a combination of these can allow someone to keep very large demand deposits if they want to,” said Collins, who says it’s always wise to speak with a financial advisor, especially for those with hundreds of thousands of dollars in liquid savings.

Consumer confidence in the banking sector remains shaky and may falter for some time. But McBride said the main point for clients to keep in mind is that “your money is safe — and it’s available.”

Alan Scherter contributed to this report

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