Federal Officials Lift Cap on Insured Deposits

(KNSI) – The Federal Reserve, Federal Deposit Insurance Corporation, and United States Treasury Department are expanding insurance for large bank deposits.

The Bank Term Funding Program was announced Sunday evening after a third bank failed since last Wednesday. There are now no limits to deposit protection. The previous cap was $250,000 per customer. Prior to the financial crisis of 2008, it was $100,000.

In a joint statement, the agencies say BTFP does not equate to a bailout by the taxpayer. A special assessment will be levied against other banks to pay for it.

Signature Bank of New York was put into receivership with the FDIC and the agency has appointed the former head of Fifth/Third Bank as Chief Executive Officer of a new bridge bank. It had $88.5 billion in deposits as of December 31st. That makes it one of the 20 largest lenders in the country.

Signature joins Silvergate Bank and Silicon Valley Bank in being shuttered in a little over four days. The first two were unique in that they were more involved in cryptocurrency trading than the average financial institution. Both had platforms to allow dollars to be transferred by investors and crypto exchanges between themselves. They had been under pressure since the collapse of FTX and Alameda Research.

Silvergate’s collapse helped spark the failure of Silicon Valley Bank on Friday. It too is unique among lenders in that it caters almost exclusively to venture capitalists and other speculative technology startups. SVB was the second-largest bank failure in American history.

Negotiations between the FDIC, the Royal Bank of Canada (RBC), and PNC Bank to purchase Silicon Valley Bank broke down on Sunday. Deposits are available again since normal business hours resumed on Monday.

It is unclear if the move by federal regulators will do enough to calm jittery clients at those institutions. All three lenders catered to high net worth companies and individuals. Banks where a majority of accounts are below the legal limit and are fully insured and whose loans are to less risky ventures are not as susceptible to a bank run.

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