The news: Insuring the deposits of all Silicon Valley Bank customers over the $250,000 limit will cost the Federal Deposit Insurance Corporation (FDIC) nearly $20 billion, per an agency statement.
The FDIC will report the exact amount when it fully terminates its receivership of the collapsed bank’s assets. The estimated $20 billion is about one-sixth of the total Deposit Insurance Fund, which was at $128.2 billion as of December 2022.
Who’s paying for that? When the decision to cover SVB’s uninsured deposits was announced, financial regulators and President Biden made it clear that the cost would not affect taxpayers. So who’s paying for this?
What’s so special about it? Currently, banks that participate in the FDIC deposit insurance program pay a quarterly assessment for the service.
Will insurance be extended further? Soon after government officials announced insurance coverage for all of SVB’s and Signature Bank’s deposits, struggling regional banks around the country clamored for a similar guarantee. In reply, financial regulators only offered vague statements about doing what was necessary to maintain stability in the banking sector.
What would be the consequences of making that guarantee?
Banking regulation would require a major makeover to prevent banks from taking on more risk because they felt comfortable that deposits would be guaranteed. Capitalization requirements would become extremely tight, stress tests would be robust and frequent, and financial regulators would need to make a concerted effort to ensure laws were heavily enforced.
This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.
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