FDIC proposes deposit insurance reforms in wake of bank failures

SAN FRANCISCO (KGO) -- The Federal Deposit Insurance Corporation, or FDIC, this week announced proposed reforms to their deposit insurance program.

It comes in the wake of a series of bank failures -- first Silicon Valley Bank, then Signature Bank, and most recently First Republic.

The FDIC currently covers deposit accounts up to $250,000 -- but that could soon change.

The FDIC's main purpose is to insure deposits so that if a bank starts to look a little shaky, customers will feel safe leaving their money with them. This can help avoid a bank run, when too many people pull their money out of a bank at once.

The customers of the banks that failed included huge companies like streaming service Roku, which held nearly $500 million at Silicon Valley Bank for their payroll.

Because the FDIC only insures an individual account up to $250,000... that's a lot of money left uninsured. And so, the FDIC is proposing changes to prevent bank failures in the future.

"Whenever the FDIC starts dealing with failed banks, and starts to pay out billions and billions of dollars because of the associated losses, people want to know if there isn't a better way to run the FDIC," says Professor Jim Wilcox of the Graduate School at the Berkeley Haas School of Business.

The FDIC has proposed three possible changes.

The first is "limited coverage." The FDIC leaves their framework the same, but possibly raises the $250,000 limit.

The second is "unlimited coverage." The FDIC would insure qualifying deposits at any dollar amount, with no limit.

The third is "targeted coverage." The FDIC would offer different deposit insurance limits across account types, meaning that different types of accounts would have different limits.

"This is the preferred option so far by the FDIC and maybe by a few others, is to have some kind of a targeted business account that, in banks, which would allow them, those businesses, to have very high ceilings or maybe no ceiling at all," says Wilcox.

Congressional action would be required to enact these changes.

For now, consumers should protect themselves by making sure their deposits are at an FDIC member bank, and consider diversifying their accounts if they're over the $250,000 limit.

Consumers should also be aware that only deposits are covered, so money in stocks and cryptocurrency is not protected.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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