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Comment by toomuchtodo | Hacker News Reader

Edit: What AnimalMuppet said.

FDIC is backstopped by the Fed and participant banks. There is no hard limit anywhere. Make depositors whole, good luck to everyone else. If you’re exceeding FDIC insurance limits as a depositor, you should fix that, today. If you have exposure to at risk asset classes, you’re already exposed, you’re just waiting for prices to catch up to reality.

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And how are credit-worthy people supposed to take out loans going forward for basic things like mortgages and credit cards, when there aren't enough bank deposits left to allow said banks to make loans? They're just supposed to wait until enough entrepreneurial financiers set up these institutions?

The problem is too many loans. Loans make it too easy to do things so there's always more pressure to lend. Eventually you get to a stage where loans are secured with loans (today's issue) because of greed and it becomes impossible to ever call in loans because it causes cascading failure.

When the problem is too many loans 'how do you still let people get loans' is not the right question to be asking.

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Reserve rates have been 0% since 2020. All Deposit taking institutions with a loan department have carte blanche to print money. The model you're operating under doesn't actually map to how things are now.

> you should fix that

how do you fix it?

As an individual, spread deposits across accounts or institutions to stay within limits [1]. There are account products that will sweep your deposits across other institutions in order to ensure full coverage. Fidelity's cash management account will cover up to $5M using sweeps [2], for example. Mercury has a similar product for business accounts [3].

If you're a larger business (>$5M cash equivalents on hand), treasury management in government money market funds instead of a demand deposit account. All roads lead to mostly US treasuries here.

[1] https://www.fdic.gov/resources/deposit-insurance/brochures/i...

[2] https://www.fidelity.com/why-fidelity/safeguarding-your-acco...

[3] https://mercury.com/vault

(previous comment on the topic during SVB failure: https://news.ycombinator.com/item?id=35171289)

Splitting assets between banks doesn’t change the insurance income collected by FDIC, and nor does it change the overall risk profile for FDIC - its artificial structuring behaviour. It’s a minimum, not a cap.

Again, as my comment [1] mentioned, there are no hard limits. For FDIC to fail, the US government and it's largest member banks (including those considered globally systemic) would have to fail. There will be losses, but there will be no systemic failure. Properly titling and distributing deposits ensures you've met your obligation to meet deposit insurance requirements (although it might not matter such that happened with SVB depositors). You cannot control the regulatory mechanisms, but you can take somewhat straightforward, prudent measures to keep the paperwork you'll have to do and any interruptions to your finances to a minimum.

If your risk model is the US government allowing FDIC to fail, we're well outside of reasonable discourse. Your currency would be food, fuel, and firearms.

[1] https://news.ycombinator.com/item?id=39441532

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