Deposit insurance is a government guarantee that ensures an account holder’s money at an insured bank is safe up to a certain amount, currently $250,000 per account. This insurance is provided by the Federal Deposit Insurance Corporation (FDIC), a government agency that collects fees, known as insurance premiums, from banks. The FDIC is overseen by a five-member board, which includes three members nominated by the president and confirmed by the Senate, plus the Comptroller of the Currency and the director of the Consumer Financial Protection Bureau. Deposit insurance was created during the Great Depression in 1933 to sharply reduce the frequency of bank runs, which were common in the U.S. during that period. Bank runs occur when people lose confidence in banks and rush to withdraw their money, leading to bank failures. The implementation of deposit insurance helped stabilize the banking system and facilitated economic recovery.
By law, up to $250,000 is insured for each depositor’s account in each bank. Congress raised the limit from $100,000 to $250,000 temporarily in 2008 and made the increase permanent in 2010. For most Americans, this amount is sufficient to cover all money in their checking and savings accounts. However, businesses and other large organizations may hold over $250,000 at a given time. As of March 31, 2025, about 39% of all bank deposits were uninsured, according to the FDIC.
Financing the FDIC
The FDIC receives no appropriation from Congress, although it is backed by the full faith and credit of the U.S. government. Instead, the agency is funded by insurance premiums paid by banks and from interest earned on the FDIC’s Deposit Insurance Fund, which is invested in U.S. government obligations. The banks’ premiums depend on the size of the bank and bank regulators’ assessment of the riskiness of the bank. As of March 31, 2025, the Deposit Insurance Fund had $140.9 billion, or about 1.31% of all insured deposits. The FDIC is gradually increasing premiums to bring the ratio up to the statutory minimum of 1.35% by September 30, 2028. Its target is to get the Fund up to 2% of insured deposits over the long run to “reach a level sufficient to withstand a future crisis.”
Resolving Bank Failures
When a bank fails, the FDIC has two primary options. The first is to sell the bank to a willing buyer, which may take a portion or the entirety of the failed bank’s assets and liabilities. The second is to pay off the insured deposits and liquidate the failed bank’s assets, with uninsured depositors recuperating money based on the value of the assets. Since 1991, the FDIC has been required to choose the resolution method least costly to its Deposit Insurance Fund, unless the FDIC and other regulators declare that the least-cost option poses a systemic risk. In such cases, the FDIC may opt for a different resolution method to mitigate broader economic impacts.
Recent Examples
On March 19, 2023, the FDIC sold substantially all the deposits, the branches, and some of the loans of failed Signature Bank to Flagstar Bank of Hicksville, New York. The FDIC estimated that the cost of the failure to the Deposit Insurance Fund was approximately $2.4 billion. On March 23, the agency sold all the deposits and loans of Silicon Valley Bank, but not the bank’s portfolio of bonds and other securities, to First Citizens Bank & Trust of Raleigh, North Carolina. The FDIC estimated the deal cost the Deposit Insurance Fund about $16.1 billion.
Systemic Risk Exception
At times of acute financial stress, the law allows the government to lift the $250,000 ceiling through a “systemic risk exception.” This exception can be declared by the Treasury Secretary, in consultation with the president, provided at least two-thirds of the members of the FDIC’s Board of Directors and two-thirds of the members of the Federal Reserve’s Board of Governors approve. The systemic risk exception was written into law in 1991 but wasn’t used until the Global Financial Crisis of 2008. In March 2023, Treasury Secretary Janet Yellen invoked the systemic risk exception to cover all deposits of Silicon Valley Bank and Signature Bank. In May 2023, the FDIC proposed to cover its losses on SVB and Signature with an assessment of 0.125% a year for two years levied on large banks’ uninsured deposits, arguing that these banks benefited indirectly from the decision to cover all uninsured deposits at the two failed banks. It would exempt the first $5 billion of uninsured deposits at any bank from the assessment. Only 113 of the more than 4,000 banks insured by the FDIC would be subject to the levy, including the nation’s largest banks. The FDIC estimated the special assessment would raise $15.8 billion.
Proposed Legislation
In October 2025, legislation was introduced to raise the deposit insurance ceiling to $10 million for non-interest-bearing transaction accounts at midsize banks. Deposits in these accounts, which are commonly used by small businesses for payroll and other operational expenses, often exceed the FDIC’s $250,000 limit. Consequently, panics at midsize banks can lead to runs and potential financial crises. Supporters of this legislation argue that raising the insurance limit for small business accounts would reduce the risk of future runs at midsize banks. Many supporters also share the belief that the current insurance limit handicaps community and regional banks while benefiting large banks, which are implicitly insured for free due to their “too big to fail” status.
Los críticos de la propuesta sugieren que aumentar la cobertura de seguros aumentará el riesgo moral, lo que llevará a un comportamiento de préstamos más arriesgado debido a la mayor protección contra corridas bancarias. Si la FDIC asegura cuentas hasta $10 millones, y si el aumento de la cobertura de seguros conduce a un comportamiento de préstamos más arriesgado y pérdidas financieras más grandes, la FDIC tendrá que asumir una factura mucho más grande. Al mismo tiempo, si bien los bancos de tamaño medio se benefician directamente de esta reforma, los bancos más grandes tendrán que asumir el costo a largo plazo. En los próximos diez años, el costo adicional de asegurar estas cuentas sería asumido exclusivamente por bancos con activos superiores a $10 mil millones.
Consecuencias financieras
Si bien los bancos de tamaño medio se beneficiarán directamente de esta reforma, los bancos más grandes tendrán que asumir el costo a largo plazo. El aumento de la cobertura de seguros conllevará un mayor riesgo moral, lo que llevará a un comportamiento de préstamos más arriesgado debido a la mayor protección contra corridas bancarias. La FDIC tendrá que asumir una factura mucho más grande si el aumento de la cobertura de seguros conduce a un comportamiento de préstamos más arriesgado y pérdidas financieras más grandes.
