The Biden administration announced that the federal government, through the FDIC, will insure all deposits of Silicon Valley Bank (SVB) and Signature Bank. This is, no doubt, a form of bank bailout although the administration would prefer to not use that type of language. The FDIC had (has?) a limit of $250,000 per account that they will insure. As an example, if a depositor had one million dollars in a bank account (or in bank accounts at one bank) and then the bank failed, only $250,000 would be guaranteed. The rest of it would be lost.
The problem with SVB is that 94% of the deposits were beyond the $250,000 limit. These accounts belonged to small and large businesses. If the businesses were not granted access to their capital, immediately, then they would not be able to make payroll or take care of other expenses. The administration simply removed the $250,000 FDIC limit and replaced it with no limit. It is not quite clear if this was just an exception to the rule done in an emergency for SVB and Signature bank or if it will become a feature moving forward. Either way, this zero-hour rule change will change the way US banking is done forever… or at least into the foreseeable future.
SOURCES:
SVB, Signature Bank Depositors to Get All Their Money as Fed Moves to Stem Crisis – WSJ
Amid crisis, Biden tells Americans ‘banking system is safe’ – ABC News
