[mindslight]

That the bureaucracy can't avoid bailing out large connected depositors is precisely why the scope of FDIC coverage should be increased to all bank accounts, with a graduated rate of assessment due to the increased variance caused by large sums. "Just say no" is as impractical here as it is elsewhere.

[tinglymintyfrsh]

FDIC thresholds are de facto meaningless and expose litigation risks for selective non-coverage.

Is there any downside to FDIC expanding policy to state "All deposits are covered, regardless of amount"? This is effectively already happening AND would contribute value-add safety and security to US banks. It would also create a level playing field for them, regardless of size, to have an opportunity to service customers they may not be backstopped to handle without outside investment or additional customers. Perhaps the only downsides would be stress tests and audits would need to ensure proper investments and diversification of products to avoid the risks of becoming a dangerously-narrow boutique bank.

[dragonwriter]

> FDIC thresholds are de facto meaningless and expose litigation risks for selective non-coverage.

The first of these claims is false, the second is true only in the trivial sense that anyone can sue for any reason however baseless and even a completely baseless claim has some cost, and the existence of the limit may make people upset enough to file a baseless suit.

> Is there any downside to changing the policy to state “All deposits are covered, regardless of amount”.

Presumably Congress felt there was both when introducing the FDIC Act and again when revising it in 1991 to restrict the conditions in which the FDIC could cover deposits beyond the insured amount.

> This is effectively already happening

No, its not. The invocation of the systemic risk exception in limited cases is not the same thing, "effectively", as a general extension of FDIC insurance to all balances without limits.

> AND would contribute value-add safety and security to US bank. It would also create a level playing field for US banks, regardless of size, to have the opportunity to service customers of any size.

This contradicts what precedes it; if it was effectively already happening, doing it officially would change nothing of substance.

[mindslight]

> if it [unlimited FDIC protection] was effectively already happening, doing it officially would change nothing of substance

Except that it's widely believed that depositor bailouts still only apply to "too big to fail institutions", and if this had been a smaller bank with less politically important depositors, the FDIC might have said too bad.

Furthermore the main point of my original comment is that making it explicit gives the FDIC a reason to assess insurance premiums on all accounts in proportion to their explicitly acknowledged risks (which are non-linear!), rather than continuing to collect smaller premiums under the belief that they only have to cover small accounts, while often ending up covering larger ones.

If those insurance premiums get too onerous for large accounts, then that creates a preemptive incentive to split up accounts and/or look at other non-bank financial custodians (decreasing FDIC's exposure either way).