The Federal Deposit Insurance Corporation (FDIC) has unveiled a startling figure that shows Americans are holding a colossal $7.7 trillion in uninsured deposits within their bank accounts.
The agency’s data, captured at the end of March, shows the amount of unprotected deposits in US banks has been increasing for the first time since the last quarter of 2021. The agency wrote in a recent report:
From year-end 2009 through year-end 2022, uninsured domestic deposits at FDIC-institutions increased at an annualized rate of 9.8 percent, from $2.3 trillion to $7.7 trillion.
While the FDIC’s insurance coverage of up to $250,000 per depositor offers a crucial safety net, the burgeoning pool of unprotected funds has emerged as a focal point of concern.
The agency is particularly alarmed by the concentration of these uninsured deposits within larger banks, a trend it believes could exacerbate the risk of bank runs. It adds, however, the in “2022 inflation-adjusted dollars, the value of uninsured deposits peaked in 2021 and remained greater in 2022 than at any point in the FDIC’s history prior to 2021.”
The collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank served as a stark reminder of the potential vulnerabilities in the banking system. In an unprecedented move, the federal government stepped in to protect all deposits at these institutions at the time, combining FDIC insurance with a sweeping application of the systemic risk exception.
Nevertheless, their collapse notably saw popular stablecoin USDC lose its peg to the U.S. dollar after it was revealed that $3.3 billion of the funds backing it were held at Silicon Valley Bank while it led with a capital crisis and a bank run.
The FDIC pointed out in its report that the $7.7 trillion figure represents 43% of domestic deposits, but added that historically “losses to uninsured depositors have been small” as even when banks fail, uninsured depositors “do not incur a loss, for the failures in which uninsured depositors incur a loss, the dollar amount of the loss was small in aggregate.”
Featured image via Unsplash.
