[FreakLegion]

If you look through the thread I replied to and the broader conversation, some people objected to backstopping deposits without limit and think rates have to go up if this is the new status quo.

The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't? If one costs 1x, why should the other cost > 1x?

It's a serious question. FDIC assessment rates aren't as simple as tax brackets and for example it's possible that the act of spreading deposits across more accounts in more banks would increase the fees paid into the existing system anyway.

[mercyandgrace]

>The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't?

It matters because only 1 (SVB) bank failed. If those depositors had their money swept across multiple banks this point would be moot.

Edit: If deposits are spread about multiple banks, the FDIC does not need to carry as large of a balance to cover the loses of any single bank, which results in less indirect fees to depositors of different banks.

[peyton]

I don’t follow the math. A bank failure is a bank failure. There’s no difference to the FDIC between 100 depositors with $250k swept across 100 banks and 1 depositor with $25m.

[salawat]

If that one depositor with 25m banks only at the bank that fails, FDIC is on the hook for all 25m.

If the deposit is 250k across 100 banks, and only 1 bank fails, FDIC is only on the hook for at most the 250k.

Now multiply that by number of depositors. It's RAID for banks. You're gaining fault tolerance by decreasing the impact of any particular failure.

[mercyandgrace]

>It's RAID for banks.

Just wanted to say this is such a great analogy. Thanks.