Financial encyclopedia

Banking crisis-is the deposit guaranteed?

What protection do small depositors have in the recent global banking crisis? The Federal Deposit Insurance Corporation (FDIC) in the United States can protect depositors from losses caused by bank bankruptcy, and currently provides depositors with up to $250,000 in insurance for each bank account in the United States.

JPMorgan Chase pointed out earlier that since the Federal Reserve began to violently raise interest rates last year, the interest rate of local bank deposits did not keep up with the interest rate increase, and the central bank tightened its quota, the most vulnerable banks in the United States lost about $1 trillion in deposits, 50% of which was lost after the outbreak of the Silicon Valley banking crisis, 25% of which went to government money market funds and 25% to larger banks.

The reason for this big transfer of deposits is that the protection of deposits is calculated by account, not by person. Therefore, if the deposit assets are more than 250,000 US dollars, they can get more fund protection if they are scattered in different accounts. In the United States, nearly $7 trillion in bank deposits are not covered by insurance. Motong believes that full protection of all deposits will help improve the situation.

When the epidemic broke out in March 2020, Congress authorized the FDIC to cancel the deposit and insurance ceiling of $250,000 to prevent the pandemic from triggering bank runs. After several banks closed down in succession, the pressure on the banking industry soared, and the temporary cancellation of the insurance ceiling immediately became a national topic again.

The US Treasury Secretary Yellen said that she has not considered or discussed providing comprehensive insurance for bank deposits in the United States without the approval of Congress. She pointed out that if a single bank failure is considered to cause systemic risk, it may invoke the exception of systemic risk and allow the Federal Deposit Insurance Corporation (FDIC) to protect all depositors, but it will be examined on a case-by-case basis.

Back in Hong Kong, most banks are members of the Deposit Protection Scheme (DPS). DPS protects the deposits deposited in the bank. In case of bank failure, the qualified funds deposited by customers in the bank will be paid by the deposit insurance plan. The maximum amount of protection for each depositor in each bank is HK$ 500,000.