Fewer Than One Percent Of Accounts Are Above The FDIC Limit

By Norbert Michel of Cato.

"Yesterday, the Brookings Institution hosted an online debate titled Should the Ceiling on Deposit Insurance be Lifted?

Most of the participants did not support lifting the cap so that all deposits would be covered by FDIC deposit insurance, and everyone seemed to acknowledge (at least some of) the risks and challenges of federally insuring all deposits. They also seemed to agree that raising the cap above $250,000 would only help the wealthiest depositors at the expense of everyone else.

While the participants did use data to support their arguments, and we have no quibble with their figures, there is important additional evidence that further emphasizes just how few accounts are above the $250,000 FDIC insurance cap.

For starters, the Federal Reserve’s most recent Survey of Consumer Finances shows the median transaction account balance – defined to include checking, savings, money market, call accounts, and prepaid debit cards – was $5,300. And, as pointed out in the Brookings debate, the average (mean) balance was $42,000. But it’s also important to note these are conditional averages, ones calculated after eliminating all accounts with zero balances.

A more detailed look, by income percentile, shows that even most high‐​income families have balances well below the $250,000 cap. For instance, the (conditional) median balance in the 80^th to 89^th percentile was $20,000, while the median for those in the 90^th to 100^th percentile was $70,000. Even the conditional average (mean) balance for the highest 10 percent of income earners, one that is surely biased upward by very high earners, was $229,000 — still less than the FDIC cap.

But the most recent call report data collected by the Federal Financial Institutions Examination Council (FFIEC) paints an even starker picture.

Of all the financial institutions reporting, including commercial banks and federal savings banks, there are approximately 860 million deposit accounts (not including retirement accounts). But fewer than one percent–just 0.83 percent–of these accounts have more than $250,000. It is true that almost 60 percent of total deposits, by dollar amount, is in those accounts. But relatively few accounts have balances greater than $250,000, and only the amount above the cap is uninsured.

Moreover, roughly half of the accounts with balances larger than the $250,000 FDIC cap are in the nation’s 13 largest banks, all of which have assets greater than $250 billion.

And while the total number of accounts does exceed seven million, and some of the accounts are owned by the same person or business, it simply is not the case the most people – or most businesses – have accounts exceeding the $250,000 FDIC cap. For instance, according to the Small Business Administration, there are more than three million small businesses (and a J.P. Morgan study of 600,000 small businesses suggests the average deposit balance is less than $20,000).

It is very difficult to see the Silicon Valley Bank depositor bailout as anything other than a policy mistake that benefited a very small number of wealthy individuals. Eliminating – or even raising – the FDIC cap for deposit insurance coverage would only further entrench some of the worst aspects of the current regulatory framework."