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The clamoring for changes in federal deposit insurance in the wake of the failure of Silicon Valley Bank earlier this year has died down, FDIC Chairman Martin Greunberg said last week.
While that may have no direct impact on credit unions, trade groups had emphasized the need for parity between financial institutions. As a result, they said, if the FDIC account insurance rate were increased beyond $250,000, the NCUA’s insurance of $250,000 should be increased as well.
“It is important for credit unions and banks—and our regulators—to be treated equally in order to provide the best quality financial services to consumers,” CUNA Deputy Chief Advocacy Officer Jason Stverak said at the time.
No Imminent Changes
“While there was considerable interest in the immediate aftermath of the bank failures earlier this year, that has dissipated with time,” Greunberg said, at the annual conference of the International Association of Deposit Insurers on Sep. 28. “At this point there does not seem to be any imminent likelihood of changes to deposit insurance coverage in the U.S.”
Any increase in deposit insurance would require congressional approval.
Greunberg also addressed deposit insurance issues that same day at the FDIC’s Bank Research Conference.
Also, of note at that conference, researchers presented a paper that definitely concluded that social media played a large part in the failure of Silicon Valley Bank this year.
In discussing deposit insurance, Greunberg said that more than 90% of Silicon Valley’s deposits were uninsured.
“The prospect that uninsured depositors at SVB would experience losses alarmed uninsured depositors at several other regional banks, and depositors began to withdraw funds,” he said.
However, he noted that as of the end of 2022, more than 99% of deposit accounts in the U.S. were below the $250,000 threshold.
Increase Options
Greunberg outlined the three options for deposit insurance increases that the FDIC contemplated earlier this year—an increase in deposit insurance coverage beyond $250,000, a policy change to ensuring all accounts regardless of their amount, and targeted increases that would provide different insurance levels for different types of accounts.
FDIC officials said in their report that the third option was the best one, but Congress has not increased the insurance levels for any accounts.
Social Media Impact
At the research conference, researchers reported that social media played a large role in the failure of Silicon Valley Bank.
“SVB depositors active on social media played a central role in the bank run,” the three researchers from U.S. and two from abroad, reported in “Social Media as a Bank Run Catalyst.” They continued, “These depositors were concentrated and highly networked through the venture capital industry and founder networks on Twitter, amplifying other bank run risks.”
And they warned, “Given the increasingly pervasive nature of social communication on and [off] Twitter, we do not expect this risk to go away, but rather, it is likely to influence other outcomes, as well.”
CFPB
