How Does Deposit Insurance Actually Work?

Описание: Member FDIC. Covered by the FSCS. Member of CDIC. You have read that line a thousand times and probably never checked what it means.

So here is the question this episode answers: if your bank failed on Monday morning, where does the money actually come from?

It is not your money sitting in a vault. It is a pool that every insured bank pays into, every year, whether anything goes wrong or not. We look at how big that pool is, what ratio the law requires it to hold, who pays the premium and who really ends up carrying the cost.

Then we test it against 2023, when three of the largest bank failures in American history happened inside nine weeks. The fund paid out, the surviving banks refilled it, and the ratio climbed back above its legal floor within two years.

And then the uncomfortable part: deposit insurance creates a problem by design. It removes your reason to check on your bank, so somebody else has to do the checking. We look at what that costs, and at the one thing the fund does not protect you from at all.

CHAPTERS
00:00 The sentence you have walked past ten thousand times
00:51 The pool: where the money actually sits
03:08 Who actually pays, and why it comes out of your interest rate
04:19 The ratio: 1.35 percent, and what that really means
05:35 The year it was tested: Silicon Valley Bank, Signature, First Republic
07:24 What the fund is not: the government is the real backstop
09:30 Moral hazard: why insurance changes behaviour
11:32 What to do with it: the three checks worth four minutes
13:04 The sentence again: what that line on your card means now

THE NUMBERS IN THIS EPISODE
2.5 thousand dollars, the original US limit in 1934
250 thousand dollars, the US limit today
1.35 percent, the statutory minimum reserve ratio
2 percent, the FDIC's long-term target
128 billion dollars in the fund at the end of 2022
1.27 percent, the reserve ratio before the 2023 failures
20 billion dollars, the cost of resolving Silicon Valley Bank
18 billion dollars of that, for deposits above the insured limit
2.5 billion dollars, Signature Bank
13 billion dollars, First Republic
145 billion dollars in the fund by mid 2025
1.36 percent, the ratio after the recovery
0.8 percent, the EU target for pre-funded schemes

SOURCES
FDIC, Deposit Insurance Fund Management and Assessment Regulations
FDIC, When a Bank Fails: Facts for Depositors, Creditors and Borrowers
FDIC, Your Insured Deposits
FDIC, 2023 Annual Report
Federal Reserve OIG, Material Loss Review of Silicon Valley Bank, September 2023
GAO, Bank Regulation: Preliminary Review of Agency Actions Related to March 2023 Bank Failures
Canada Deposit Insurance Corporation, coverage and reimbursement
European Union Deposit Guarantee Schemes Directive 2014/49/EU
UK Prudential Regulation Authority and Financial Services Compensation Scheme