Investors and savers are worried after runs on deposits caused the failures of Silicon Valley Bank of Santa Clara, Calif., on March 10 and Signature Bank of New York on March 12. But what many people may not realize is just how common it is for a large portion of a bank’s deposits not to be covered by insurance.
A breakdown of assets for SVB Financial Group
— Silicon Valley Bank’s holding company — by Odeon Capital analyst Dick Bove indicates that most of the failed banks’ depositors would have been covered by the banks’ assets — even for uninsured balances.
Federal regulators took the extraordinary step on March 12 of saying all deposits at the two banks, even uninsured balances, would be available to customers.
Also on March 12, the Federal Reserve set up a special facility to make loans to banks with securities collateral pledged at par. This could help banks that need to raise cash avoid taking losses on securities that had lost market value as interest rates had risen.
Judging from the seesaw action in the stock market this week, especially for regional banks, it would seem people are still worried about uninsured deposits. We’ll take a look at these numbers for the two failed banks, the industry and the “big four” U.S. banks, to which some deposits have been flowing from regional banks.
The numbers may seem alarming at first, but chances are that most uninsured-deposit balances at a given U.S. bank would be covered by its assets were it to fail.
The circumstances leading to the two recent bank failures have been well documented:
Silicon Valley Bank was focused for decades on lending to and gathering deposits from the venture-capital community. The bank faced a perfect storm of deposit outflow while being forced to raise cash by selling securities at a loss after bond prices had been pushed down as interest rates rose.
Signature Bank had a diverse business model, but its newer services to virtual-currency exchanges and related companies led to a damaged reputation and enough deposit outflow for state regulators to decide to close the bank.
What about uninsured deposits?
The first thing to point out is that a bank holding company and a bank are different things. The Federal Deposit Insurance Corp. provides insurance on failed banks’ deposits, up to certain limits, through a pool that is funded by banks based on their asset sizes.
The basic deposit-insurance coverage limit for an individual at a bank is $250,000. However, your actual insurance coverage might be considerably higher if you have joint accounts or accounts in the name of a business or of a trust. The insurance picture can be complicated, and you can learn more by reading the FDIC’s guide to Your Insured Deposits.
Financial writer CD Moriarty also has details about how you can maximize your FDIC deposit-insurance coverage beyond $250,000.
So what about the uninsured deposits? Because of all the details that go into determining a person’s total potential FDIC insurance coverage at a single bank, we only have estimates.
On page 80 of its annual 10-K report for 2022 filed with the Securities and Exchange Commission, Silicon Valley Bank’s holding company SVB Financial Corp.
estimated that it had $151.5 billion in uninsured deposits, or 88% of all deposits as of Dec. 31.
And on page 52 of its 10-K, Signature Bank’s holding company, Signature Bank Corp.
said that “approximately 89.7% of our total deposits of $88.59 billion were not FDIC-insured.”
Those are high figures based on industry numbers. The FDIC released its Quarterly Banking Profile report on Feb. 28, along with a press release with the fourth-quarter summary.
Total domestic deposits in FDIC-insured institutions as of Dec. 31 were $17.725 trillion, according to page 5 of the quarterly report. The estimate of insured deposits was $10. 068 trillion (page 25), leaving an estimated 7.657 trillion, or 43%, in uninsured deposits.
Also as of Dec. 31, the FDIC had $128.2 billion in its deposit-insurance fund (noted on page 5).
Before getting into a discussion of deposit-insurance coverage, here are uninsured-deposit estimates for the “big four” U.S. banks:
JPMorgan Chase & Co.
estimated on page 100 of its 10-K that it had $1.384 trillion in uninsured deposits as of Dec. 31, “primarily reflecting wholesale operating deposits.” Uninsured deposits made up 59% of $2.340 trillion in total deposits (reported on page 259).
In its 10-K, Bank of America Corp.
said its deposits totaled $1.930 trillion as of Dec. 31, “of which total estimated uninsured U.S. and non-U.S. deposits were $617.6 billion and $102.8 billion,” for a total of $720.4 billion in uninsured deposits, or 38% of total deposits as of Dec. 31. The uninsured-deposit estimates are on page 57 of the report.
estimated its total uninsured deposits were $1.16 trillion as of Dec. 31 (on page 313 of its 10-K). Total deposits (page 11) were $1.366 trillion; uninsured deposits were 85% of the total. Citigroup had a high level of deposits gathered outside the U.S. (47% of the total, page 229), which helps explain its higher level of uninsured deposits than other members of the big four group.
Wells Fargo & Co.
said on page 27 of Exhibit 13 of its 10-K that “total deposits that exceed Federal Deposit Insurance Corporation (FDIC) insurance limits, or are otherwise uninsured, were estimated to be $510 billion” as of Dec. 31. Total deposits (page 26) were $1.384 trillion. So there were an estimated 37% in uninsured deposits, or deposits in accounts with totals above insurance limits.
Estimated levels of insured deposits vary greatly for the big four, and those of Bank of America and Wells Fargo are below the FDIC’s national estimate for the U.S. banking industry.
But all of the uninsured-deposit estimates for the big four are significant, and these are banks that many people consider to be “too big to fail.”
What if SVB’s uninsured deposits hadn’t been guaranteed by the FDIC?
After Silicon Valley Bank failed, Odeon’s Bove estimated that on the holding company level, SVB Financial Group had $191 billion in “total estimated value” for its assets, with total estimated liabilities (including $173 billion in deposits as of Dec. 31) of $196 billion.
By this analysis, the “net negative” was about $5 billion, per Bove’s analysis.
That $5 billion would be 3% of SVB’s deposits as of Dec. 31. Yes, the real situation was more complicated in light of later securities sales and related losses, as well as the pre-failure deposit outflow, but there appeared to be plenty of value at SVB to cover depositors, at least eventually, after the FDIC liquidated the bank or sold it.
In an interview, Bove pointed out that the $128.2 figure for the FDIC’s deposit-insurance fund was small relative to the size of the U.S. banking industry, but he also said: “The fact that some deposits are uninsured is irrelevant.”
“The U.S. banking system is capable of protecting deposits with its assets,” Bove said.
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