Silicon Valley Bank’s dramatic downfall marked the second-largest bank collapse in U.S. history. As depositors rushed to withdraw their assets, the California Department of Financial Protection and Innovation moved to shut the bank down and appointed the Federal Deposit Insurance Corporation, or FDIC, as receiver. To protect depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara and transferred all deposits of Silicon Valley Bank into it. Depositors once again had access to their money on Monday morning.
Hearing the news of Silicon Valley Bank may conjure up visions of the Bedford Falls Building and Loan, where, in Frank Capra’s movie, “It’s a Wonderful Life,” banker George Bailey, played by actor Jimmy Stewart, gives depositors money from his own pocket to stave off a run on the bank. It also raises questions about what that little phrase, “Member FDIC,” means when we hear it in bank commercials.
The U.S. Government created the FDIC in 1933 in response to thousands of bank failures in the 1920s and ‘30s. Its mission is to maintain stability and public confidence in the nation’s financial system. Although it is part of the government, the FDIC does not receive Congressional appropriations. Instead, banks and savings associations pay premiums to the FDIC for deposit insurance coverage. (Although it was created much later, the National Credit Union Administration, or NCUA, plays a similar role for credit unions.)
What does this mean for you? If your bank is a member of the FDIC, it means your deposits are insured, typically up to $250,000 per ownership category, per insured bank. The FDIC insures deposits only; it does not insure investment products offered by banks, such as mutual funds or securities. Those are covered by the Securities Investor Protection Corporation, or SIPC.
The FDIC likes to boast that in its history, no depositor has lost a single penny of insured funds related to a bank failure. In the case of Silicon Valley Bank, a systemic risk exception approved by Treasury Secretary Janet Yellen also enabled the FDIC to protect uninsured deposits, which will be covered by a special assessment on banks.
Is it possible to receive more than $250,000 of deposit insurance coverage at one FDIC-insured bank? That depends on the “ownership category” of your deposits, which is the manner in which you hold your funds. Typical categories include individual accounts, joint accounts, certain retirement accounts, employee benefit plan accounts, trust accounts, business accounts, and government accounts. Deposits you hold in different categories receive separate insurance coverage, up to at least $250,000, even if you hold them at the same bank. Although FDIC coverage is limited, other innovative solutions exist that allow individuals and businesses to obtain significantly more FDIC coverage per tax ID without having to go through the hassle of opening several different bank accounts. Savant advisors can help clients take advantage of these options as needed.
How do you know if your bank is insured by the FDIC? Many FDIC-insured banks display the FDIC sign at their branches or include information in the disclosures on their websites, but you can also search the FDIC’s BankFind Suite to see if your bank is among the 4,700+ insured institutions in the U.S. To learn, on a per-bank basis, how much of your money is insured by the FDIC, you can use the FDIC’s Electronic Deposit Insurance Estimator, or EDIE, and enter your account information.
Although it couldn’t prevent the failure of Silicon Valley Bank (or Signature Bank, which also failed last week), the FDIC conducts regular examinations and provides guidance to banks on how to manage risk. If a bank does fail, the FDIC steps in to help make depositors whole. Overall, the FDIC’s goal is to maintain confidence in the banking system and prevent harm to the broader economy.