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Should FDIC insurance go beyond $250,000?

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  • Staff Report 

Lawmakers are grappling with how to respond to the recent bank collapses of Silicon Valley Bank and Signature Bank, the second- and third-largest bank collapses in US history. The federal government has been working to maintain the public’s faith in the banking system, while also dealing with the aftermath of the collapses.

Over a weekend, government actions were taken to stop the risk of further bank runs. The response included guaranteeing all deposits at the failed banks, even if they went beyond the federally insured limit of $250,000. However, the decision to guarantee these deposits has faced criticism as a bailout by some, which raises the question of whether there is a limit to FDIC insurance and whether the cap needs to be raised to a higher limit.

Finger Lakes Partners (Billboard)

As part of the response, lawmakers have been considering lifting the federally insured cap of $250,000. Multiple lawmakers have expressed support for examining whether this cap is high enough, particularly in light of the recent bank collapses. For example, Senator Elizabeth Warren has argued that small businesses need to be able to count on getting their money to make payroll and pay utility bills. She has also called for lawmakers to examine whether the cap should be increased to $2 million, $5 million, or $10 million.

The FDIC was created during the Great Depression to protect people’s money from bank failures during economic turmoil. It insures savings and checking accounts, money market deposit accounts, and certificates of deposit up to $250,000 per account and depositor. The cap has been increased in the past from $100,000 to $250,000 as part of the fallout of the 2008 financial crisis.