The speed and intensity of the banking stress earlier this year shocked many in the banking sector and many outside of it. Following the turmoil, a Gallup poll found that nearly half of Americans are worried about the safety of their money deposited in banks. In response, the FDIC last week announced the launch of a public awareness campaign for deposit insurance.
As we’ve discussed, deposit insurance is an unbelievably powerful value proposition, something that is unique to the banking sector. So powerful, in fact, that insured deposits continue to rise while deposits in aggregate fall at the fastest pace in history. In the FDIC’s announcement, they mention that 99% of deposit accounts are under the insurance limit. While true, 41% of deposits in the banking sector remain uninsured, near all-time highs, which creates large exposure for banks and depositors.
We have no doubt that, if deposit insurance was increased by regulators, bank balances would immediately increase as large-value depositors come back into the system. However, changes seem unlikely. In the interim, we hope the FDIC’s campaign is successful, and we continue to recommend banks use reciprocal and sweep products to attract and retain large-value depositors.
The ModernFi Team
Change from three week ago
Sources: FHLB Advances are an average of FHLB Boston, FHLB Chicago, and FHLB Des Moines. Brokered CDs are an average of Fidelity and Vanguard. Listed CDs provided by National CD Rateline. US Treasurys provided by WSJ. SOFR provided by Chatham Financial.
Deposit data provided by FFIEC Call Reports.
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