[aeternum]

It's questionable how much splitting money across banks decorrelates risk. SVB's mistake was buying slightly too many treasuries at slightly too long a duration. Pretty much every bank is in this same boat if interest rates continue going up.

All the banks own debt (treasuries, mortgages, bonds, etc) at pitifully low interest rates.

[wpietri]

It's not all that questionable. How many banks have failed out of the total number of banks?

[aeternum]

Suppose the FDIC decides they are keeping the 250k limit. The logical outcome is for companies to leverage fintech services that help spread corporate deposits among multiple banks.

The problem is now you have high correlation across that pool of banks. If depositors get scared and a bankrun occurs, they are now pulling money from the entire pool. The 2008 bank failures provided a small glimpse into that correlated risk.

How many banks today are capitalized sufficiently to handle a bankrun of the scale that occurred at SVB? SVB's balance sheet is not unique, all banks have significant unrealized losses due to bonds, mortgages, and any other kind of debt that they own. During the pandemic, the Fed reduced the reserve requirement to zero so banks need to keep 0% of customer money 'in the vault'.

[wpietri]

That sounds like a very specific hypothetical future risk. That's a logical outcome in a vacuum, but companies have managed large cash and near-cash positions for a long time without services like you describe. I think your "slippery slope" argument is a fantasy.

But if it weren't, and if it were a problem for the FDIC, which I don't think is established, then the FDIC can just change the definition of what's covered a bit. It's not a hard fix for them to say that they won't cover more than $x per beneficiary total.