Recent bank failures have focused attention on deposit insurance. With the recent failures of Silicon Valley Bank and Signature Bank the FDIC ensured all depositors were quickly paid back in full. However, despite this outcome, deposit insurance only technically guarantees deposits up to $250,000, though there are exceptions for multiple beneficiaries and different account types.
Treasury Secretary Janet Yellen has stated that amounts over $250,000 will only be guaranteed for banks that pose systemic risk. That does imply that deposits of over $250,000 could still be at risk if the bank fails. Ironically, this was one factor in the collapse of Silicon Valley Bank because depositors with over $250,000 rushed to withdraw funds, causing a bank run, although the bank had already incurred paper losses. The Treasury is in a difficult position, on the one hand it wants to reassure depositors, but on the other it doesn’t want to reward banks for taking excessive risk or distort the incentives that banks face.
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