FEDERAL DEPOSIT INSURANCE, CORPORATION INSURANCE, AND THE SILICON VALLEY BANK COLLAPSE

By Christopher Kochiyama, CPA | Manager - Tax

The Silicon Valley Bank (SVB) collapse on March 10th spread concern among many high-net-worth individuals and businesses owners leading them to question the safety of their cash reserves. One of the glaring revelations of this event was the high volume of deposits held with the bank that were not insured by the Federal Deposit Insurance Corporation (FDIC). According to the Federal Reserve Board, only about 6% of SVB Financial Group’s deposits were insured as of December 31, 2022. Although regulators quickly stepped in to guarantee that depositors would have full access to their funds, it is important to remember that this was the exception, not the rule.

HOW MUCH OF MY ACCOUNT IS INSURED?

On July 21, 2010, the standard insured amount was permanently raised from $100,000 to $250,000 per depositor, per FDIC-insured bank, for each account ownership category. For example, jointly held accounts with two co-owners have up to $500,000 of eligible coverage, while a revocable trust’s coverage will depend on the number of trust beneficiaries. For further information related to a depositor’s individual situation, they may visit the FDIC website’s “Electronic Deposit Insurance Estimator" (EDIE) at edie.fdic.gov/index.html.

WILL ANY CHANGES TO FDIC RULES COME FROM THE BANK RUNS IN MARCH 2023?

To better understand recent bank failures and how they can be protected against in future, the FDIC performed a comprehensive review of the deposit insurance system.

The report, released on May 1, 2023, concludes with three primary potential options for reform:

1. Limited Coverage, maintaining the current system of deposit insurance, potentially increasing the deposit insurance limit;

2. Unlimited Coverage, fully insuring all deposits; and

3. Targeted Coverage, substantially increasing coverage to business payment accounts, without significantly changing the limit for other deposits.1

While bringing challenges of its own, the report finds that the most promising option is to transition to Targeted Coverage. Whether or not this opinion will influence legislative change remains to be seen.

While there is potential for significant reform to FDIC coverage limitations, depositors must work within the existing rules to ensure they are mitigating the risk of financial loss due to bank failure. For many, this may mean opening additional FDIC-insured accounts, joining a credit union, utilizing sweep vehicles, or simply retitling a personal account in the name of a living trust with multiple beneficiaries. Please contact Christopher, if you would like to further discuss your financial, tax, or accounting needs. 

1 fdic.gov/analysis/options-deposit-insurance-reforms/report/options-depositinsurance-reform-full.pdf