On May 1, 2023, the FDIC released a comprehensive overview of the deposit insurance system and options for reform to address financial stability concerns stemming from recent bank failures. The report examines the role of deposit insurance in promoting financial stability and preventing bank runs, as well as policies and tools that may complement changes to deposit insurance coverage.
FDIC Chairman Martin J. Gruenberg said in a statement:
“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. This report is an effort to place these recent developments in the context of the history, evolution, and purpose of deposit insurance since the FDIC was created in 1933.”
The report titled Options for Deposit Insurance Reform, outlines three options for deposit insurance reform:
Limited Coverage. Maintaining the current deposit insurance framework, which provides insurance to depositors up to a specified limit (possibly higher than the current $250,000 limit) by ownership rights and capacities.
Unlimited Coverage. Extending unlimited deposit insurance coverage to all depositors.
Targeted Coverage. Offering different deposit insurance limits across account types, where business payment accounts receive significantly higher coverage than other accounts.
The report indicates that Targeted Coverage is the most promising option to improve financial stability relative to its effects on bank risk-taking, bank funding, and broader markets.According to the FDIC, the options and tools in the report may inform policies that can help the deposit insurance system best meet its objectives in the context of the current challenges.
Read the FDIC’s press release here.
The full report can be found here.