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The simplest answer is "excess deposits insurance". Banks (or third-party insurers) could charge a monthly insurance fee for balances over $250k that provides i

The simplest answer is "excess deposits insurance". Banks (or third-party insurers) could charge a monthly insurance fee for balances over $250k that provides insurance over the FDIC $250k cap. This allows everyone else under the $250k cap to bank without paying fees (the bank already paying insurance on those as per FDIC), and provides greater coverage to those above the cap. Think of it like an Umbrella Insurance policy. Some banks might provide the insurance for their most favored clients if they so choose, or embed the insurance inside other services.

pjc50 4y ago
> Banks charge a monthly insurance fee for balances over $250k that provides FDIC insurance over the $250k cap The thing is .. the FDIC is already funded by banks. https://www.fdic.gov/about/what-we-do/index.html https://www.fdic.gov/about/what-we-do/index.html "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country." How the banks choose to pass that cost on to customers/shareholders is up to them. It's instructive to read https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2022dec/qbp.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... for the last available quarter; the insurance fund is on page 24. I can quote you two numbers and you can decide whether they are big or small: there is $128 billion in the fund, and this covers 1.27% of total US banking deposits.
- rexreed 4y ago
  Yes that's correct. I'm suggesting an additional fee that is paid by the account holder who holds excess funds above the amounts that are already covered by the bank in their fees for FDIC insurance coverage. I'm aware of the existing bank-paid insurance that covers the mandatory $250k FDIC coverage up to the cap. The difference that I am suggesting is that the umbrella insurance is paid by the account holder to the bank for excess insurance coverage. This allows insurance coverage for account holders over $250k, of which there is no insurance coverage, optional or of any kind, available today.
  - pjc50 4y ago
    I think we've just discovered that account holders over $250k _are_ (or can be) covered regardless? Surely the logical counterparty for the insurance is not the bank, but the third party insurer? i.e. that people should explicitly have to pay for FDIC coverage themselves? > of which there is no insurance coverage, optional or of any kind, available today. This is basically a credit default swap for bank accounts, and if you wanted to insure the reported $450m that Roku allegedly had with SVB, someone would have sold you a product I'm sure. edit: remembered "insured cash sweep", which is the product that everyone should have been using. See https://www.intrafinetworkdeposits.com/ https://www.intrafinetworkdeposits.com/ or https://www.cbhou.com/Resources/Customer-Corner/entryid/237/faqs-your-guide-to-insured-cash-sweep https://www.cbhou.com/Resources/Customer-Corner/entryid/237/...
    - rexreed 4y ago
      I think this is a case of insurance coverage. The fact that there's some implicit coverage of excess amounts is not sustainable long-term. Just like we buy insurance in the unlikely event that our house is flooded or damaged by an earthquake, so too should companies with significant assets in banks purchase, on their own, insurance to cover the potential possible, but unlikely, situation of a bank bust causing them to lose most of their bank account funds. In this way the government can focus on insuring the general public, and those "too big to fail" can get private insurance to cover their own risks. This is just my opinion and a possibility. Certainly if governments want to come to the rescue or we have a "survival of the fittest" with the loudest, angriest parties getting their way, then we can run things that way as well.
      - pjc50 4y ago
        Is FDIC, which is paid for by banks, "the government"?
erik_seaberg 4y ago
Thank you, I’ve been confused about whether this product even potentially exists (as opposed to shotgunning your deposit across lots of banks to game the FDIC limit) and this is the first time I’ve seen it properly named.
- rexreed 4y ago
  Right now there aren't many satisfactory options for insuring excess deposits but here are a few strategies (including your aforementioned "shotgunning" approach): https://www.forbes.com/advisor/banking/ways-to-insure-excess-deposits/ https://www.forbes.com/advisor/banking/ways-to-insure-excess...
chasd00 4y ago
Insurance won’t matter because the insurer will be bailed out. Remember AIG? They sold insurance (CDS) which everyone bought then when it was time to pay out “oops bail us out please” and they were. So insurance is meaningless because who cares if the risk is priced correctly because the insurer will be bailed out themselves. The money pipe was opened then and SVB showed it will never be closed. The capture is complete.
- rexreed 4y ago
  Clearly there needs to be some sort of reckoning when it comes to bailouts. That's a political problem for which I don't have any simple answer.

pjc50 4y ago

> Banks charge a monthly insurance fee for balances over $250k that provides FDIC insurance over the $250k cap The thing is .. the FDIC is already funded by banks. https://www.fdic.gov/about/what-we-do/index.html https://www.fdic.gov/about/what-we-do/index.html "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country." How the banks choose to pass that cost on to customers/shareholders is up to them. It's instructive to read https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2022dec/qbp.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... for the last available quarter; the insurance fund is on page 24. I can quote you two numbers and you can decide whether they are big or small: there is $128 billion in the fund, and this covers 1.27% of total US banking deposits.

rexreed 4y ago
Yes that's correct. I'm suggesting an additional fee that is paid by the account holder who holds excess funds above the amounts that are already covered by the bank in their fees for FDIC insurance coverage. I'm aware of the existing bank-paid insurance that covers the mandatory $250k FDIC coverage up to the cap. The difference that I am suggesting is that the umbrella insurance is paid by the account holder to the bank for excess insurance coverage. This allows insurance coverage for account holders over $250k, of which there is no insurance coverage, optional or of any kind, available today.
- pjc50 4y ago
  I think we've just discovered that account holders over $250k _are_ (or can be) covered regardless? Surely the logical counterparty for the insurance is not the bank, but the third party insurer? i.e. that people should explicitly have to pay for FDIC coverage themselves? > of which there is no insurance coverage, optional or of any kind, available today. This is basically a credit default swap for bank accounts, and if you wanted to insure the reported $450m that Roku allegedly had with SVB, someone would have sold you a product I'm sure. edit: remembered "insured cash sweep", which is the product that everyone should have been using. See https://www.intrafinetworkdeposits.com/ https://www.intrafinetworkdeposits.com/ or https://www.cbhou.com/Resources/Customer-Corner/entryid/237/faqs-your-guide-to-insured-cash-sweep https://www.cbhou.com/Resources/Customer-Corner/entryid/237/...
  - rexreed 4y ago
    I think this is a case of insurance coverage. The fact that there's some implicit coverage of excess amounts is not sustainable long-term. Just like we buy insurance in the unlikely event that our house is flooded or damaged by an earthquake, so too should companies with significant assets in banks purchase, on their own, insurance to cover the potential possible, but unlikely, situation of a bank bust causing them to lose most of their bank account funds. In this way the government can focus on insuring the general public, and those "too big to fail" can get private insurance to cover their own risks. This is just my opinion and a possibility. Certainly if governments want to come to the rescue or we have a "survival of the fittest" with the loudest, angriest parties getting their way, then we can run things that way as well.
    - pjc50 4y ago
      Is FDIC, which is paid for by banks, "the government"?

erik_seaberg 4y ago

Thank you, I’ve been confused about whether this product even potentially exists (as opposed to shotgunning your deposit across lots of banks to game the FDIC limit) and this is the first time I’ve seen it properly named.

rexreed 4y ago
Right now there aren't many satisfactory options for insuring excess deposits but here are a few strategies (including your aforementioned "shotgunning" approach): https://www.forbes.com/advisor/banking/ways-to-insure-excess-deposits/ https://www.forbes.com/advisor/banking/ways-to-insure-excess...

chasd00 4y ago

Insurance won’t matter because the insurer will be bailed out. Remember AIG? They sold insurance (CDS) which everyone bought then when it was time to pay out “oops bail us out please” and they were. So insurance is meaningless because who cares if the risk is priced correctly because the insurer will be bailed out themselves. The money pipe was opened then and SVB showed it will never be closed. The capture is complete.

rexreed 4y ago
Clearly there needs to be some sort of reckoning when it comes to bailouts. That's a political problem for which I don't have any simple answer.