And, yes, opening ten checking accounts is difficult and inconvenient.
Long story short, you’re caught up in monetary policy. To mitigate these risks, you can use deposit accounts that sweep across multiple banks to get the cash insurance you need, and your finance/treasury department can invest the rest in short dated treasuries (which are backed by the Federal Reserve with no limit, and are considered risk free) or money market funds which contain only these same securities.
https://en.wikipedia.org/wiki/Certificate_of_Deposit_Account...
https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...
Maybe the fraction should be made larger than 0%? Or maybe bailouts should come with more strings attached including actual penalties for executives and board members?
No, the banks have to pay premiums to FDIC for the insured amount, period. They have to pay premiums for these first $250k that get insured; it's "automatically insured" because they don't get a choice, but that insurance costs a market-price premium out of which all the potential payouts come.
If the fractional reserve requirements were raised, banks would need the deposits in order to lend and they likely would welcome some larger balances.
it certainly isn’t alone an excuse if you are wealthy enough to even worry about the limit.
most wealthy people probably have dozens of accounts for this reason alone. I read an article just yesterday about how Giannis (NBA star) opened 50 bank accounts to put $250k each years ago.
Yes, via credit default swaps, though nobody does this because automated sweeping takes you to $3mm.
Beyond that, having back-up accounts money can be pulled to if things look fishy (it was suspicious to me Wednesday night and obvious Thursday, when the CEO basically said stay with us because it would be nice) and, if you have more than a year’s runway, an actual treasury function (part time is fine) covers most of the risk.
However, the simple option here is to put money into short term govt bonds, there are ETFs like SGOV that make this extremely easy.
Even more ridiculous is that you are getting 4-5% yield on them.
This is what is so crazy about this entire saga - people should not be parking millions upon millions at a bank earning no interest when you could be getting 4-5%+ - regardless of solvency issues.
It is frightening to me people don't seem to understand this. It's absolutely basic money management. It would be more understandable when interest rates were basically 0 and you wouldn't get any yields from bonds. But that isn't the case and hasn't been the case for a long time now.
Now clearly SVB were offering perks for doing this, but say you had $100m parked there, are those perks really worth $5m/year? People should have been asking that. It's a whole team of engineers paid for!
And really offering personal perks to founders contingent on company money doesn't sit completely right with me, unless the founder owns 100% of the equity which most do not. It's one thing offering perks as goodwill but putting convents etc on company money for personal perks is suspect to me.
It isn't frightening to me, because the trust people put into banks' reliability is a testament to the fundamental strength of the American financial system. I'd rather have that than the opposite, where everyone is hyper-sensitive about everything and even refuse to use banks at all.
That said, there is no excuse for Roku, for example, to have more than $400 million in uninsured funds at SVB. That is fundamental malpractice on the part of its corporate treasury, CFO, and management.
if you buy an expensive house or car you generally pay a lot more to insure that asset. not sure why people don’t think of buying insurance on their bank deposits in the same way if you find yourself in a situation where you need to hold much more than $250k in one account for whatever reason.
But even if you’re an individual holding million in cash (and for whatever reason it is not invested), it isn’t exactly difficult to open 10 checking + savings accounts and putting $250k each. In fact that is the prudent thing to do.