6 ms·

Also, FDIC was designed for everyday folks, not wealthy families or large investors. Exceedingly few people have that much cash on hand. Wealthy people opening

• dylan604 5y ago
  Most wealthy people don't put all of their wealth in a cash account that earns them no money. Sure, they might have some largish amounts in cash, but the majority of it will be invested making more money.
  • jdavis703 5y ago
    Even so, taking the original post in good faith one could assume this also applies to SIPC limits (currently $500k).
  • bluGill 5y ago
    If you are extremely wealthy it wouldn't be a surprise to need more than that limit in your bank accounts just to cover ongoing expenses. A couple large mansions, each with staff to pay... Of course you probably want those in separate accounts anyway just in case some staff defrauds you - they only get the one account.
    • dylan604 5y ago
      If you're playing the wealthy game, you don't have anything. Your corporate shells own everything, and each shell would have its own accounting.
  • arcticbull 5y ago
    Even that cash could just be net borrowed cash. For instance, I keep $XX,000 in my bank account but a negative $XXX,000 balance in my brokerage account. And I'm not particularly wealthy. This way I have an isolated cash cushion buffer separate from my investments, and I don't really care what, if anything, that money makes. It's actually invested in my brokerage account, at a [edit](1.25%) margin APR, that's tax deductible - and offsets my capital gains. [edit] correction: I double-checked, I guess I'm paying closer to 1.25%. Looks like margin rates are both up at IBKR, and my recollection was off. Thanks for the spot-check throwaway2037. It's hard to find the historical rates, too.
    • throwaway2037 5y ago
      AB: 75bps for equities lending (I assume). Woah! I assume you are not ultra high net worth (UHNW) @ >100M USD. Where can you borrow so cheap? Interactive Brokers? Please share!
      • arcticbull 5y ago
        Edited, thanks!
        • throwaway2037 5y ago
          Still, 125bps is an amazingly low rate! Nice find.
          • arcticbull 5y ago
            Yeah that’s why I use them. A lot of the retail brokerages will offer more competitive rates if you push them on it but it’s really unlikely they’ll do better than IBKR so why bother with the negotiation?
  • kevin_thibedeau 5y ago
    They're also the ones who benefit most from low rates by forcing everyone else to put money into investment vehicles they control and giving themselves cheap loans for financial engineering.
• pc86 5y ago
  I think it's a bit far to say it was never intended for them. Likely the intent was just for people not to have to worry about the money they had in banks disappearing. Even more likely, if enough people had wanted the FDIC limit to be per depositor and not per bank it very easily could have been.
  • eru 5y ago
    FDIC was a pretty silly idea anyway. If you want to keep the banking system stable, it's good to keep some skin in the game for depositors. There's always government bonds (and money market funds that invest in government bonds, and narrow banks that only invest in government bonds etc) for people who want as much of a guarantee as FDIC can give you.
    • darkerside 5y ago
      FDIC is to insure people, not the institution. At that point, the institution has failed, so their skin is long gone.
      • eru 5y ago
        Expectations about what happens in the future drive behaviour in the present. Or more concrete: without something like FDIC banks have some incentive to arrange they balance sheet in such a way that it's (a) safe, and (b) simple and transparent enough to convince customers that it's safe. Customers have an incentive to look for banks that are simple and safe. (Customers don't have to do the balance sheet analysis themselves. They can rely on third parties.) With something like FDIC, customers don't care how risky their bank is. In fact, more risk is better if that ever so slightly raises the returns available. (FDIC charges insurance premiums, but they are not properly risk adjusted.)
        • snowwrestler 5y ago
          If natural incentives obviated the need for the FDIC, we would not have the FDIC, because both banks and incentives pre-date the FDIC by hundreds of years. It was created for a reason.
• 1123581321 5y ago
  Someone with a lot of cash can obtain private insurance more cheaply than the cost of managing deposits in dozens of banks. Multiple deposit locations are more of a convenience and a relationship building approach. You do see some people try to “game” FDIC/NCUA with $249k in each bank but they are generally either eccentrics or elderly people who only invest simply and are afraid of disasters. It’s up to the bank to do loan and fee business proportionately to their deposits and these kinds of accounts are factored in. No harm done.
• dnautics 5y ago
  > Exceedingly few people have that much cash on hand. Minimal comfortable retirement at 65 requires is what, ~ 1M USD in assets? What the FDIC rule implies, is you can't do this in cash. So obviously, inflation makes it stupid to do that in cash, but even without inflation this FDIC rule basically forces you into playing the wall street game (aka subsidizing rich people) in order to retire comfortably. Think about that! Of course, in our economy inflation is real, too, so pretty soon they are going to have to increase this to beyond $250k even.