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    29May, 2023
    FDIC recommends raising deposit insurance for businesses

    NEW YORK — U.S. businesses might be able to secure bank deposit insurance for accounts holding more than $250,000 if Congress agrees with the Federal Deposit Insurance Corp.’s new proposal to ease the industry turmoil that has sparked three bank failures in the past two months.

    The FDIC recommended the change Monday, rethinking the decades-old limit and seeking more flexibility to cover higher deposits on a “targeted” basis. Raising the insurance limit for business accounts that pay for company operations such as payroll would shore up accounts that pose the most risk to financial stability, the FDIC said.

    The proposed change appears to openly acknowledge that the FDIC is looking for ways to calm both depositors and markets as the agency contends with the third bank run this year. First Republic Bank became the second largest failure in history Monday when regulators seized it and JP Morgan Chase stepped up as a buyer.

    “The recent failures of Silicon Valley Bank and Signature Bank, and the decision to approve Systemic Risk Exceptions to protect the uninsured depositors at those institutions, raised fundamental questions about the role of deposit insurance in the United States banking system,” FDIC Chairman Martin J. Gruenberg said in a statement accompanying the regulator’s recommendations.

    The FDIC is a government agency formed during the Great Depression to restore faith in U.S. banking institutions.

    As of December, more than 99% of U.S. deposit accounts held less than $250,000, and so were automatically covered by existing FDIC insurance, Gruenberg said.

    However, the system remains subject to the sort of bank runs that brought down First Republic, despite a consortium of big lenders having pooled $30 billion in cash to stabilize the bank as recently as March.

    Last Monday, First Republic reported its first-quarter results, shocking investors when it revealed that

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    17May, 2023
    F.D.I.C. Proposes Broadening Bank Insurance After First Republic Seizure

    WASHINGTON — The Federal Deposit Insurance Corporation on Monday recommended that Congress consider expanding its regulatory powers to backstop certain deposits so that it could prevent bank runs.

    The proposal came the same day the F.D.I.C. orchestrated the seizure and sale of First Republic Bank to J.P. Morgan, and weeks after a run on Silicon Valley Bank helped sow its collapse.

    Right now, the F.D.I.C. insures bank deposits only up to $250,000. That has left banks that have a large share of uninsured deposits — particularly small- and midsize banks — vulnerable to runs. The F.D.I.C. estimates that as of the end of last year banks held $7.7 trillion of uninsured deposits, about 43 percent of total deposits in the United States.

    “The report highlights that while the overwhelming majority of deposit accounts remain below the deposit insurance limit, growth in uninsured deposits has increased the exposure of the banking system to bank runs,” Martin Gruenberg, the chairman of the F.D.I.C., said in a statement accompanying the report. “Large concentrations of uninsured deposits increase the potential for bank runs and can threaten financial stability.”

    Fears over the stability of the banking system have led to an exodus of deposits from smaller regional banks to larger banks in recent weeks, as nervous customers moved their money to banks that are seen as “too big to fail.”

    Some members of Congress have been looking for ways to boost the deposit cap, at least temporarily, in an effort to stop depositors from pulling their money out of smaller institutions that have been at the center of recent bank turmoil.

    F.D.I.C. officials acknowledged on Monday that those bank runs caught them by surprise. As part of a review into what took place, the regulator has been studying ways to improve the system. Its report

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    3Apr, 2023
    The FDIC was created exactly for this kind of crisis. Here’s the history

    Updated March 14, 2023 at 8:05 AM ET

    The FDIC was created 90 years ago to help the U.S. navigate a catastrophe that put thousands of banks out of business. Its mission is to keep panic and turbulence from collapsed institutions like Silicon Valley Bank, the second-largest bank failure in U.S. history, from spreading through the financial system.

    Now the agency is once again working to convince citizens and businesses that their money is safe, hoping to avert bank runs that would deepen the current banking crisis.

    The FDIC is relying on one of its main tools — deposit insurance — to help that cause, announcing that every account will be fully backstopped, even if deposits are above its current $250,000 limit.

    The FDIC exists to help the banking system cope with exactly this type of crisis: When it was created in 1933, some 4,000 banks had closed in the first few months alone.

    Here’s a look at how the FDIC and deposit insurance work to bolster banks:

    Public confidence has always been key

    “I can assure you, my friends, that it is safer to keep your money in a reopened bank than it is to keep it under the mattress,” President Franklin D. Roosevelt told the U.S. public on March 12, 1933, in his very first “Fireside Chat.”

    Fast-forward 90 years, and the current president and the FDIC are again working to convince citizens and businesses that their money is safe, hoping to avert runs on banks that would deepen the banking crisis.

    From the agency’s early days, deposit insurance has been seen as a key to bank customers’ confidence — which in turn has been the key to banks’ solvency.

    “We knew how much of banking depended upon make-believe,” Raymond Moley, a speechwriter and adviser to

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