US banks have over $1 trillion in uninsured deposits. Signature is important.

  • The US government closed Signature Bank on Sunday.
  • On Friday, regulators shut down Silicon Valley Bank, sparking panic among startups and VCs.
  • Both banks had a vast amount of customer deposits that were not insured by the FDIC. There are others.

A second bank was closed by the US government on Sunday. This time it was the Signature Bank.

What does this financial institution have in common with Silicon Valley Bank? Both had huge amounts of customer deposits that were not insured by the FDIC.

The FDIC insures US bank deposits up to $250,000 per account to prevent bank run-ins and defaults. The demise of SVB and now the collapse of Signature Bank have stretched this system to the breaking point.

On Sunday, the US Treasury Department, the Federal Reserve and the FDIC said in a joint statement that all SVB depositors will be made full on Monday. Authorities completely ignore the $250,000 insurance limit. SVB had $173 billion in total deposits, about 88% of which were unfunded.

That’s more than $150 billion in additional deposits that the FDIC suddenly decided to insure.

Authorities grant Signature Bank the same special exemption, so all depositors there get well too. Signature had $89 billion in total deposits, 90% of which were uninsured by the FDIC. That’s another $79 billion that this agency is shouldering.

“By insuring all deposits with SVB and Signature, regulators have identified the risk of cascading effects on other regional banks and the broader economy as more significant than the moral hazard of increasing FDIC limits,” said Rich Falk-Wallace, CEO of data analytics firm Arcana and a former portfolio manager at hedge fund Citadel.

At SVB and Signature, the high proportion of uninsured deposits is partly due to the relatively small number of customers with large accounts. At SVB, for example, Roku announced that it had nearly $500 million in deposits with the bank, well in excess of the $250,000 guarantee. Banks with a much larger number of retail customers, meanwhile, would typically have a much lower average balance and a much higher percentage of insured deposits.

Insider analyzed the regulatory filings of 15 major US banks to see how many uninsured deposits were out there at the end of 2022. The answer is well over $1 trillion.

One thing to note on this list is the presence of First Republic, whose share price plummeted last week as fears of contagion spread.

In a regulatory filing filed Friday, First Republic said the average size of its customers’ deposits was $200,000, less than the FDIC-insured limit of $250,000, while its average business account contained $500,000.

“First Republic’s liquidity position remains very strong,” the bank said. “Sources beyond a well-diversified deposit base include over $60 billion of available, unused credit capacity at the Federal Home Loan Bank and the Federal Reserve Bank.”

Here is a ranking based on the percentage of total deposits that are not insured by the FDIC:

Note: Data as of end of 2022.

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