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Politics


WHAT TO KNOW ABOUT BANK DEPOSITS AND THE FDIC DEPOSIT INSURANCE FUND

By Kathryn Watson, Sarah Ewall-Wice

March 16, 2023 / 5:55 PM / CBS News

 * 
 * 
 * 

Sheila Bair on banking sector turmoil

Former FDIC chair Sheila Bair on turmoil in the banking sector 06:15

All week, a parade of Biden administration officials has sought to drive home
the message that taxpayers will not bear the financial burden of the
government's guarantee that all of the depositors at two failed banks — Silicon
Valley Bank (SVB) and Signature Bank — will have their funds available to them
immediately. 

On Monday, President Joe Biden vowed that Silicon Valley Bank account holders
would "have access to their money as of today," and that included "small
businesses across the country that bank there and need to make payroll, pay
their bills and stay open for business." And Treasury Secretary Janet Yellen
sought to assure Congress Thursday that "our banking system remains sound, and
that Americans can feel confident that their deposits will be there when they
need them." 

The guaranteed deposits extend beyond the Federal Deposit Insurance Corporation
(FDIC) fund insurance that promises depositors' funds up to $250,000 will be
covered, and only a very small percentage of those bank customers held accounts
under the FDIC maximum. At SVB, 94% of domestic deposits were uninsured, while
90% of Signature Bank's deposits were uninsured, according to a report by S&P
Global Market Intelligence. That is far higher than the proportion held by large
U.S. banks — about 47% — according to S&P Global.



Mr. Biden said all of these depositors would be covered through the Federal
Deposit Insurance Corporation fund, although equity and bondholders in the banks
will lose their investments: "That's how capitalism works," Mr. Biden said.

Some of the businesses covered are sizable. Roku, a company that has about $1.9
billion in cash, revealed in an SEC filing last week that its $487 million in
deposits with SVB "are largely uninsured." Roku's other $1.4 billion is
"distributed across multiple large financial institutions." Online video game
company Roblox also disclosed in a March 10 securities filing that roughly 5% of
the company's $3 billion in cash and securities, or $150 million, was held at
the bank. The company said in the filing that the bank's collapse "will have no
impact on the day-to-day operations of the company."




WHAT IS THE DEPOSIT INSURANCE FUND AND HOW DOES IT WORK? 

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

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

"Where that fund comes into play is in the event that a bank fails because their
liabilities exceed their assets," which may not ultimately be the case with SVB
and Signature Bank, McBride said.  


HOW MUCH DOES THE DEPOSIT INSURANCE FUND HAVE NOW AND WILL IT HAVE THE FUNDS IF
MORE BANKS FAIL? 

By the end of the fourth quarter of 2022, the DIF had $128 billion in its
coffers, which is "fully sufficient" to cover SVB and Signature Bank customers,
according to a senior Treasury Department official.



In the wake of the 2008 financial crisis, the DIF was $21 billion in the red in
2009, when it had to provide funds to depositors of the more than 100 financial
institutions that had failed, which ultimately took a cash infusion of $128
billion.

The financial hit the DIF will take because of the collapse of SVB and Signature
will depend on whether buyers are found for the failed banks' assets, and what
the selling price is, which is so far unknown, McBride said. 

"Because the issue isn't bad loans, but quality assets currently selling for
less than face value, the hit to the DIF may be minimized," McBride said. 

In SVB's case, many of the deposits in excess of the $250,000 insurance
guarantee were payrolls for companies, and businesses often have other ways to
manage payroll accounts, including specialty accounts or mechanisms with added
protections, said J. Michael Collins, professor of public affairs and human
ecology and an expert in consumer and personal finance. 

Republican Sen. Marco Rubio of Florida predicted on "CBS Mornings" Thursday that
"potentially every American with a bank account is going to have to pay higher
bank fees." Rubio said banks would be able to assess a fee that could
potentially come from banking customers to pay their insurance guarantee. 

"So you have people who have nothing to do with that bank, that have small
deposits, could potentially be paying higher fees as a result of the
mismanagement of one bank," Rubio said. 


WHAT WILL HAPPEN TO THE $250,000 CAP AND THE DEPOSIT INSURANCE FUND IN THE
FUTURE?

Rep. Blaine Luetkemeyer, a Republican, member of the House Financial Services
Committee and a former banker, told Politico the federal government should
temporarily insure every bank deposit in the country to increase confidence in
the U.S. financial system.



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

Goldman Sachs said Wednesday that at this stage, "we do not expect Congress to
act on deposit insurance." 

"While some lawmakers from both parties have raised the possibility of insuring
all deposits or raising the cap, other lawmakers from both parties have
expressed opposition," Goldman Sachs said. "Increasing deposit insurance without
accompanying regulatory changes looks politically difficult, but an agreement on
regulatory changes would substantially slow approval."


WHAT TO 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 investments? 

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

There are also brokerage accounts that would be covered by the Securities
Investors Protection Corporation, Collins said. And although somewhat
controversial, there are also custodial accounts using a Certificate of Deposit
Account Registry Service that can cover very large deposits. 

"Using a combination of these can allow someone to hold very large aggregate
demand deposits if they wanted to," said Collins, who says it's always wise to
speak with a financial adviser, particularly for those with hundreds of
thousands of dollars in liquid savings.  



Consumer confidence in the banking sector is still shaky and may be for some
time. But McBride said the main point customers should keep in mind is that
"your money is safe — and it's available."

— Alain Sherter contributed to this report 


BANKING CRISIS & RESPONSE

More
First Republic teeters on collapse as FDIC circles troubled bank
Bill would require clawback of compensation from executives of failed banks
Fed calls SVB's failure a "textbook case of bank mismanagement"
Transcript: Neel Kashkari on "Face the Nation," March 26, 2023
Americans voice confidence in their banks, but inflation woes continue
More
Kathryn Watson

Kathryn Watson is a politics reporter for CBS News Digital based in Washington,
D.C.



First published on March 16, 2023 / 5:55 PM

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