The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't? If one costs 1x, why should the other cost > 1x?
It's a serious question. FDIC assessment rates aren't as simple as tax brackets and for example it's possible that the act of spreading deposits across more accounts in more banks would increase the fees paid into the existing system anyway.
It matters because only 1 (SVB) bank failed. If those depositors had their money swept across multiple banks this point would be moot.
Edit: If deposits are spread about multiple banks, the FDIC does not need to carry as large of a balance to cover the loses of any single bank, which results in less indirect fees to depositors of different banks.
If the deposit is 250k across 100 banks, and only 1 bank fails, FDIC is only on the hook for at most the 250k.
Now multiply that by number of depositors. It's RAID for banks. You're gaining fault tolerance by decreasing the impact of any particular failure.
Just wanted to say this is such a great analogy. Thanks.
This is new with SVB. I get the whole "250K minimum" argumemt, but this is the first where we are seeing major 10M++ depositors getting 100% guarantees.
I don't see issue with spreading money across smaller banks - other than perhaps they may not be able to assess risk as well as larger banks. But again, SVB.
I think one thing to keep in mind is that most bank depositors hold far, far less than the 250K guaranteed by FDIC. By a large margin. Id be surprised if the average was above 10K. There are $17T in deposits across the country [1]. The FDIC at the beginning of the year had $128B in balance as insurance to depositors [2].
[1] https://fred.stlouisfed.org/series/DPSACBW027SBOG
[2] https://www.fdic.gov/analysis/quarterly-banking-profile/inde...