- The U.S. government closed signature banks on Sunday.
- On Friday, regulators shut down Silicon Valley Bank, sparking panic among startups and VCs.
- Both banks had large customer deposits that were not insured by the FDIC. We have others, too.
A second bank was closed by the US government on Sunday. This time it was Signature Bank.
What do this financial institution and Silicon Valley Bank have in common? They both had large customer deposits that were not insured by the FDIC.
The FDIC insures US bank deposits up to $250,000 per account to protect against bank crackdowns and bankruptcies. With the demise of SVB and the collapse of the current signing banks, this system has reached a breaking point.
On Sunday, the US Treasury Department, Federal Reserve Board and FDIC said in a joint statement that all SVB depositors will be full on Monday. Authorities have completely ignored the $250,000 insurance limit. SVB had a total of $173 billion in deposits, about 88% of which was uncovered.
This is over $150 billion in additional deposits that the FDIC suddenly decided to insure.
All depositors will be full there as well, as the authorities have given the same special exemption to signatory banks. The signatures had a total deposit of $89 billion, 90% of which was not insured by the FDIC. This is another $79 billion that this institution owes on its shoulders.
“By insuring all deposits at SVB and Signature, regulators will reduce the risk that spills over to other regional banks and the broader economy,” said Rich Falk-Wallace, CEO of data analytics firm. We decided that the moral hazard of raising the FDIC cap was more important than the moral hazard.” Former portfolio manager at Arcana and hedge fund Citadel.
For SVB and Signature, the high percentage of uninsured deposits is partly due to the relatively small number of customers with large balances. For example, on SVB, Roku revealed that it had about $500 million in bank deposits, well over its $250,000 guarantee. Banks with a much higher number of individual customers, on the other hand, typically have much lower average balances and a much higher proportion of insured deposits.
Insiders analyzed regulatory filings from 15 major US banks to find out how many uninsured deposits they had at the end of 2022. The answer is he’s well over $1 trillion.
One notable thing about this list is the presence of First Republic. Stocks plunged last week as fears of contagion spread.
in a regulatory filing on FridayFirst Republic said the average size of deposits held by customers is $200,000, below the FDIC-guaranteed limit of $250,000, and the average business account is $500,000.
“First Republic’s liquidity position remains very strong,” the bank said. “Funding sources beyond our well-diversified deposit base include more than $60 billion in unutilized borrowing capacity available at the Federal Home Loan Bank and the Federal Reserve.”
Below are the rankings based on the percentage of total deposits not insured by the FDIC.
Note: Data as of the end of 2022.