The FDIC insures up to $100K per person per bank. According to their list of insured institutions, there are currently 8,824 FDIC insured banking institutions.
I find it very unlikely that anyone would keep $800M in bank accounts, so the only thing that the limit seems to do is force a few people to deal with the paperwork of keeping accounts in several different banks. Why bother? Why not just insure arbitrary amounts?
Well, there’s risk management. The odds of a someone’s account being compromized or robbed from one bank are much higher than the odds of being robbed from 8,000 odd banks at the same time. So the amount the insurers are out is lower.
Mostly, though, I think the 100K limit isn’t meant as an “open several accounts” measure, but rather a “You’ve got a lot of money, insure it yourself” measure. Te 100K is meant to provide confidence for average accountholders that their money is safe in the bank (to prevent depression-era-like runs on the bank), not an insurance plan for the wealthy.
The FDIC hasn’t revised their insurance limit in a long time.
Basically, if the coverage goes up, the premiums go up.
I think it’d be dandy to have a higher limit, but the powers that be don’t agree with me.
If you need more than 100K insured, you’re free to purchase secondary deposit insurance. Some banks even advertise this product and refer their “private clients” to companies that sell that product.
But if one of the goals of the program is to instill customer confidence in the banking system, tying it to the indivdiual’s accounts and personal level of protection is more comprehensible and reassuring. If it were an lump sum guarantee for the institution, how much would you get personally if your bank went under? There’s no quick answer to that, which may be off-putting for the average account holder.
The usual explanation I’ve seen is that the concept of deposit insurance is to protect the average invester, not the highly sophisticated one. If you’ve got more than $100,000 sitting in one place, you should be able to afford to pay for investment advice on what to do with it, how safe the investment is, and so on. Under that amount, and the insurance plan looks after it for you.
Someone who is too lazy to open a second account elsewhere.
Or someone who would have to open 14 second accounts elsewhere… getting those Learjet folks to accept payments split across 11 accounts is a b**ch.
Having been involved in cleanup after some S&L failures in the early 90s, the rules wind up being pretty complicated. IIRC (this was 15 years ago), the simplest statement is that yeah, a single person is only insured for up to 100K in all their standard accounts (e.g. checking + savings + CD).
But - if your account is a joint one with your spouse, you could have a total of 200K in joint accounts, plus individual accounts, or another 100K apiece. IRA accounts were insured separately as well, so you could have 100K in savings and another 100K in an IRA account. There were more permutations than that but I can’t recall specific examples. Usually they’d do an automatic payout of any person’s accounts that added up to less than 100K, but anything that exceeded 100K (or appeared to) got specific scrutiny to see if any of the special rules applied.
If you had a certified check or bank check made out from, say, the day before the bank failed - and you hadn’t cashed that yet, its value counted against the 100K. So you wake up Friday, see you’ve got 150K in the bank, say “oops, too much”, get a cashier’s check Friday afternoon, and the bank locks down that evening, that 50K check is essentially valueless even though it hasn’t been cashed yet.
If you had brokerage money invested in CD-type group funds (I don’t think they called them mutual funds) through Billy Bob’s Brokerage House, Billy Bob would pool your money in with all their other investors and deposit it in some bank that offered high CD rates (quite common during the high-interest 80s). When the bank failed, your money through Billy Bob’s was counted against the 100K limit - so if you also had 100K in the bank, your Billy Bob money wasn’t insured (IIRC, this meant that Billy Bob had to reimburse you himself because he’d promised your money was FDIC insured).
I’d be interested in hearing details of some of the situations in which you saw that higher-level depositors got more than 100K. I know there wasn’t any option for the FSLIC to decide “we’ll be nice and give them all their money even though they have too much”. The only situation in which I can see that happening is if the bank is purchased by another financial institution, rather than being shut down / paid out. We loved P&As (Purchase and Assumptions) because they meant a HELL of a lot less work and stress. One such bank didn’t get a P&A offer until Sunday - 2 days after the bank had been shuttered. There was much joy. Typically when this happens, no depositor loses any money.
Anyway - that’s not germane to the OP, so I apologize for the hijack. The only comment I have for the OP was that originally, the limit was much lower than 100K - I remember when I was a child, it was only 40K. It hasn’t, as noted, been raised from the 100K in a very very long time.
The FDIC insurance, as implied, is a relic from the days when only a tiny sliver of the richest Americans held investments in anything other than a bank.
The vast majority of American wealth today is held almost anywhere other than a bank savings account: CDs, stocks, mutual funds, hedge funds, REITs, bonds. There’s a million and one ways to put money to use, and almost every single one of them pays higher interest (or dividends) in the long term than a bank savings account.
The financial world has changed so much that there is no incentive at all for the government to encourage people to put money into a savings account. Money placed almost anywhere else is more valuable, in that it gets applied to create more wealth in better fashion. Raising the limit on FDIC insurance would be counterproductive for the economy, and would be of value to only a tiny minority of insecure investors.
IOW, nobody does it because it’s a bad idea overall.
I was told it was partially to force large investors to split up their holdings, the idea being that otherwise, investors would invest everything in the highest-paying bank out there, causing banks to invest in riskier propositions in order to attract more high-scale business, thus making for more spectacular failures.