The government could insure it. The first $250k per depositor is automatically insured and then after that they have to pay premiums per account.

The Fed wants to enforce fractional reserve lending, therefore they won’t permit a Narrow Bank (which takes deposits and holds them solely in treasuries). If the government provided unlimited insurance for deposit accounts, the thought goes it encourages excessive risk taking on the part of financial institutions.

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...

> The Fed wants to enforce fractional reserve lending

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?

> The first $250k per depositor is automatically insured and then after that they have to pay premiums per account.

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.

They can insure it, however the banks explicitly don't want all those deposits (beyond what the law requires) to be insured because they don't want to pay the insurance cost. If you want that insurance, it's available, but of course it's not free.