The Federal Deposit Insurance Corporation (FDIC) has released a report titled "Options for Deposit Insurance Reform," which presents a comprehensive overview of the deposit insurance system and possible reforms in light of recent bank failures. The report aims to address financial stability concerns by examining the role of deposit insurance in promoting financial stability, preventing bank runs, and exploring additional policies and tools that may complement changes to deposit insurance coverage.
FDIC Chairman Martin J. Gruenberg said, “The recent failures of Silicon Valley Bank and Signature Bank, and the decision to approve Systemic Risk Exceptions to protect the uninsured depositors at those institutions, raised fundamental questions about the role of deposit insurance in the United States banking system. This report is an effort to place these recent developments in the context of the history, evolution, and purpose of deposit insurance since the FDIC was created in 1933.”
The FDIC report presents three options for deposit insurance reform. The first option, Limited Coverage, involves maintaining the current deposit insurance framework, which provides insurance to depositors up to a specified limit (possibly higher than the current $250,000 limit) by ownership rights and capacities. The second option, Unlimited Coverage, proposes extending unlimited deposit insurance coverage to all depositors. The third option, Targeted Coverage, suggests offering different deposit insurance limits across account types, where business payment accounts would receive significantly higher coverage than other accounts.
According to the FDIC, targeted coverage best meets the objectives of deposit insurance in terms of financial stability and depositor protection relative to its costs. Implementing these proposed options would require Congressional action, although some aspects of the report are within the FDIC’s rulemaking authority.
Following the failures of Silicon Valley Bank and Signature Bank, FDIC Chairman Gruenberg directed the agency to analyze the current deposit insurance framework, identify reform options for consideration, and explore additional tools that can be used to maximize the efficiency of the system.