How the Federal Deposit Insurance Corporation (FDIC) Works

Aftermath of Silicon Valley and Signature Bank

In the aftermath of Silicon Valley Bank/Signature Bank take over by the FDIC, I thought it would be a good time to review the FDIC rules for insurance on bank accounts.  All accounts for all depositors are covered up to $250,000. Should the FDIC take over a bank, the $250,000 coverage should provide for very quick access to your funds.  Let's look in the next few days to find out how quick the actual access is.  


FDIC is a government agency. The FDIC guarantee is backed up by the federal government. The FDIC insurance is federal backing of your account at a bank. Please be aware that we utilize in your investment account a government money market fund. Your cash deposits are invested in US federal government securities. There is essentially no limit to US government coverage because the US government securities are backed by the full faith and credit of the United States government.  


The Federal government has also announced that they will provide insurance coverage on amounts above $250,000 for the involved banks.  It is the intent of the Federal government to reimburse all depositors for the full amount. Again, we will watch to see how quickly the over $250,000 accounts are covered. The law is clear that $250,000 is the limit. The Federal government is using emergency powers to provide coverage over $250,000.  


To our knowledge, none of our clients have deposits with Silicon Valley Bank or any of the other banks that are named in the press reports on this matter.   


As part of our investment strategy and our overall investment plan with you, you may recall that we recommend that your cash reserves be held in a manner that you can get access to the funds immediately. We do not recommend CDs or any investment with a restriction on your access to the funds. Typically, we are concerned about financial emergencies such as repairs around the house, boilers breaking, cars dying, a family member needing financial support.  We should add to our list of concerns bank insolvency.   


We are going to watch closely and see how quickly the FDIC is able to provide access to funds for all the depositors at Silicon Valley or Signature Bank. We will continue to utilize US government money market funds, so our clients don't have to worry about the $250,000 limit and can get access to their funds on a same-day basis in an unlimited amount.   


As always, please contact us with any questions.