Both insured sweep accounts and non-FDIC depository insurance exist.
You can buy insurance to protect amounts above $250k.
Exactly this, take out insurance, open additional accounts so that the companies livelihood is not dependent on a single bank. What about all the companies who funded all these 'companies' ? Why aren't they stepping in to clean up the mess?
And who ensures that the insurance company has enough capital to pay out on that insurance?
I had no idea that was an option. My google-fu is failing me, what is that called? Who are the providers? Seems like it would be a mega capital intensive insurance product.
edit: this is way out of my wheelhouse, so an actual answer would be educational.
The term to google for is "insured cash sweep", but the specifics depend on the particular financial institution you work with. Instead of a single insurance provider, your cash is sharded behind the scenes among many member institutions. Here's one bank I picked at random from Google[0]. Brokerages like Schwab[1] and IBKR[2] also have a private insurer (both use Lloyd's of London) they offer as a service to customers.
Try searching for "reinsurance" as in insurance for insurance, Swiss Re and Lloyds of London are the two big names I can think of, I don't know much other than that.
That just moves the source of risk to the company selling you that insurance. If they go under as well, then that insurance is worthless.
Which insurance company can pay out a $40bn risk event?
When Lehman Brothers collapsed, the associated insurance payouts totaled ~$100 billion.
Reinsurance literally exists for this purpose. It's what Berkshire Hathaway does, for example.
You can only reinsure so many times before you arrive in the central bank.
Berkshire Hathaway could. They probably wouldn’t have insured SVB, though.
Lloyds of London?
We solved this problem decades ago, these businesses chose not to use the tools available to them to protect their money.
It’s silly. Either way, the money’s coming from the insurance fund. FDIC claims insurance is “at least” 250k.
The point is that diversifying deposits across banks reduces the risk of failures happening in the first place, reducing FDIC payouts. This incentive structure completely breaks down if there's no cap.