The FDIC insures up to $250,000 in bank deposits. Is it time to increase that cap?

Mar 28, 2023

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Brent Jabbour (Producer), Emma Stoltzfus (Editor)

Banks in the U.S. fail nearly every year and depositors aren’t always made whole, like the federal government did at Silicon Valley Bank and Signature Bank in March. Since 1993, customers of 76 different institutions have lost money in a bank, from hundreds to millions, according to the Federal Deposit Insurance Corporation.

Before the 2008 financial crisis, only $100,000 in deposits were FDIC-insured. That was raised to $250,000 in 2008, but is it time to raise the cap again?

LEARN MORE: Is your money safe in the bank after Silicon Valley Bank failure?

“If you really only believe that you have $250,000 that’s going to be safe in there, not only will you not deposit it, people are not going to spend money nearly as much. That money will not be reinvested in the economy because banks can’t loan it out to other businesses or other people,” said Eric Foster, CEO and co-founder of startup Woop Insurance, a former Silicon Valley Bank customer.

Sen. Elizabeth Warren, D-Mass., is among those calling for a raise in the FDIC cap following the most recent bank failures.

“I think that lifting the FDIC insurance cap is a good move,” she said. “Now the question is, where’s the right number? Is it $2 million? Is it $5 million? Is it $10 million? Small businesses need to be able to count on getting their money to make payroll.”

LEARN MORE: 186 banks are at risk of Silicon Valley Bank-like failure: Study

Former FDIC Chair Bill Isaac told Straight Arrow News he thought Warren’s idea was “horrible.” Isaac served as chair in the early ’80s, navigating a tumultuous time for banks. He brought up a proposal he had back when he was chair that he said would still work today.

“What we wanted to do was to put full insurance, full 100% deposit insurance, on all business checking accounts that did not pay interest,” Isaac said. “The notion that small businesses need their checking account money available to them at all times, under almost all circumstances, is absolutely correct. And it would be a huge benefit to our country and the small business sector of the nation in particular if we would protect non-interest bearing business checking accounts.”

“Clearly I’m biased that I’m going to like that proposal, particularly given the current environment,” Foster said. “I would say, I don’t think there is, to my knowledge, a downside in doing that.”

Foster told Straight Arrow News that when SVB would not allow them to withdraw their business funds, he scrambled to figure out how to pay his 25 full-time employees in the meantime before the government announced that depositors would be backstopped and have access to their funds within days.

SIMONE DEL ROSARIO: IS IT TIME FOR THE GOVERNMENT TO RECONSIDER HOW MUCH OF YOUR BANK DEPOSITS ARE INSURED? RIGHT NOW IT’S $250-K. BUT PEOPLE OFTEN ASSUME ALL OF THEIR MONEY IS SAFE IN THE BANK.

ERIC FOSTER, CO-FOUNDER, WOOP INSURANCE: If you really only believe that you have $250,000, that’s going to be safe in there, not only will you not deposit it, people are not going to spend money nearly as much that money will not be reinvested in the economy, because banks can’t loan it out to other businesses or other people.

SIMONE DEL ROSARIO: SOME ARE CALLING FOR THE FDIC CAP TO BE RAISED. IT WENT FROM 100K TO 250 DURING THE 2008 FINANCIAL CRISIS.

SEN. ELIZABETH WARREN: I think that lifting the FDIC insurance cap is a good move. Now the question is where’s the right number? Is it $2 million? Is it $5 million? Is it $10 million? Small businesses need to be able to count on getting their money to make payroll.

SIMONE DEL ROSARIO: FORMER FDIC CHAIR BILL ISAAC TELLS ME – HE’S NOT A FAN.

WILLIAM ISAAC, FORMER FDIC CHAIR: I think that would be a horrible idea and would destroy the free enterprise system that we have developed and the banking system that supports it.

SIMONE DEL ROSARIO: HERE’S HIS COUNTER PROPOSAL.

WILLIAM ISAAC, FORMER FDIC CHAIR: What we wanted to do was to put full insurance, full 100% deposit insurance on all business checking accounts that did not pay interest. The notion that small businesses need their checking account money available to them at all times, under almost all circumstances is absolutely correct. and it would be a huge benefit to our country or nation and the small business sector of the nation in particular, if we would protect non-interest bearing business checking account.

ERIC FOSTER, CO-FOUNDER, WOOP INSURANCE: Clearly, I’m biased that I’m going to like that proposal, particularly given the current current environment, I would say I don’t think there is, to my knowledge, a downside in doing that.