Let's quickly summarise what the Federal Deposit Indemnity Scheme covers: in relation to regulated banks only -
Current accounts
Negotiable Order of Withdrawal (NOW) accounts
Savings accounts
Money Market Deposit Accounts (MMDAs)
Time deposits such as certificates of deposit (CDs)
Cashier's cheques, money orders and other official items issued by a bank
and nothing else.
Cover is up to USD250,000 per depositor, per insured bank, for each account ownership category. The FDIC provides separate cover for deposits held in different account ownership categories. Depositors may qualify for cover over USD250,000 if they have funds in different ownership categories and all FDIC requirements are met. All deposits that an account holder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount.
But for the avoidance of doubt, it says that amongst things it does not cover are:
Stock investments
Bond investments
Mutual funds
Crypto Assets
Life insurance policies
Annuities
Municipal securities
Safe deposit boxes or their contents
U.S. Treasury bills, bonds or notes because these investments are backed by the full faith and credit of the U.S. government.
On Friday, FDIC was appointed the receiver for Silicon Valley Bank after announcing that it was to intervene in the bank.
The scale of concern was demonstrated by the fact that the FDIC, which historically closes banks on Fridays, acted yesterday to close Signature Bank and to create "Signature Bridge Bank, N.A." in its stead. The FDIC said "To protect depositors, the FDIC transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that will be operated by the FDIC as it markets the institution to potential bidders."
Over the weekend, The US Government scrambled and announced a "systemic risk exception" which is is clouded in fussy language. Here's what it means:
The bank's assets exceed its deposits but not its total liabilities.
Depositors will be regarded as first in line for repayment and on the information currently available, they will all receive 100% payout. Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg released a statement saying "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. "
That might not be entirely true because on the wording of the statement, it appears as if the depositors come first, even above the Revenue. This is a massive step forward because uninsured losses have hitherto been regarded as unsecured. What is now needed is for the same dream-team to get a change in the law to provide that all deposits are held in trust and therefore outside the creditors' regime.
The statement says "Shareholders and certain unsecured debt holders will not be protected."