FDIC Suggests Scrapping $250,000 Bank Account Insurance Limit

Topline

The federal agency tasked with insuring Americans’ bank accounts recommended raising its $250,000 insurance threshold in “targeted” circumstances Monday, including for business accounts, suggesting regulators are considering major reform following the collapse of a series of regional banks—which the Biden Administration insists does not pose a broad threat to the American financial sector.

A person walks past a First Republic Bank branch in Manhattan on April 24, 2023 in New York City. … [+] (Photo by Spencer Platt/Getty Images)

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Key Facts

The Federal Deposit Insurance Corporation released a report Monday outlining several possible changes to its $250,000 threshold for most bank accounts, including raising the insurance limit or even eliminating it entirely and insuring all banking deposits.

The FDIC ultimately recommended keeping the insured amount at or around $250,000 for most accounts, while “substantially increasing coverage to business payment accounts.”

The agency did not propose a new threshold number for “targeted” circumstances, and noted there remain several unresolved issues surrounding the proposed change—chief among them “defining accounts for additional coverage.”

Crucial Quote

“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 Gruenberg said in a statement. The FDIC lifted its $250,000 threshold for account holders at both banks after the firms failed in mid-March, letting depositors recoup all their money, after some tech startups warned they could miss payroll if their SVB deposits aren’t made available.

Key Background

The $250,000 threshold that has been in place since the 2008 financial crisis has come under increasing scrutiny following unprecedented social media-driven bank runs that doomed regional banks like SVB, Signature Bank and First Republic—which relied heavily on deposits into high-dollar accounts. The concept of permanently raising the threshold has become a politically divisive issue in Washington, while the nation’s top financial officials have not coalesced around a certain position. Treasury Secretary Janet Yellen told a Senate appropriations subcommittee in March the U.S. was not considering any “blanket” protections after lifting the $250,000 threshold for SVB, but Federal Reserve chairman Jerome Powell reportedly told Republican lawmakers at a closed-door meeting just days later that the federal government should rethink the insurance number. Figures like Sens. Elizabeth Warren (D-Mass.) and Mike Rounds (R-S.D.) have voiced support for reassessing the $250,000 threshold, though Warren has also called for tighter bank regulations, while the hard-right House Freedom Caucus came out against “Any universal guarantee on all bank deposits” in March. The Treasury Department can maneuver to raise the $250,000 limit on its own through sources like the Exchange Stabilization Fund in certain circumstances, but any long-term change would need congressional approval.

News Peg

JPMorgan Chase acquired San Francisco-based First Republic Bank Monday morning after federal regulators took control of the firm, marking the second-largest banking failure in U.S. history. The swift sale to JPMorgan Chase meant the FDIC’s insurance protections did not need to kick in for First Republic account holders.

Big Number

More than 99%. That’s the percentage of U.S. bank accounts that hold less than $250,000, according to the FDIC, but massive sums of cash put into high-dollar accounts still leaves enormous amounts of money uninsured. In 2021, almost 47% of all money deposited into U.S. banks went into accounts that were uninsured, Gruenberg said.

FDIC Suggests Scrapping $250,000 Bank Account Insurance Limit—But Just For Businesses