MAY 1, 2023

OPTIONS FOR DEPOSIT 

INSURANCE REFORM

OPTIONS FOR DEPOSIT 

INSURANCE REFORM

MAY 1, 2023
PAGE INTENTIONALLY LEFT BLANK
2023 Options for Deposit Insurance Reform | i

Table of Contents

Section 1: Executive Summary......................................................................................................... 1

Section 2: Introduction and Background ......................................................................................... 5

Introduction............................................................................................................................................ 5

Background............................................................................................................................................. 6

Section 3: History of Deposit Insurance in the U.S...........................................................................13

The History of FDIC Insurance Coverage Limits .................................................................................. 13

The Transaction Account Guarantee Program .................................................................................... 16

Composition of Deposits ..................................................................................................................... 19

History of Uninsured Depositor Losses ............................................................................................... 21

What’s Different Today?........................................................................................................................ 22

Section 4: Objectives and Possible Consequences of Deposit Insurance..........................................25

Objectives ............................................................................................................................................. 25

Possible Consequences ....................................................................................................................... 29

Section 5: Tools to Support Objectives and Address Possible Consequences...................................33

Bank Regulation and Supervision ....................................................................................................... 33

Deposit Insurance Pricing .................................................................................................................... 35

Fund Adequacy ..................................................................................................................................... 39

Section 6: Options for Increased Deposit Insurance Coverage .........................................................41

Limited Coverage.................................................................................................................................. 41

Unlimited Coverage.............................................................................................................................. 44

Targeted Coverage................................................................................................................................ 46

Excess Deposit Insurance Coverage..................................................................................................... 49

Additional Options................................................................................................................................ 51

Section 7: Conclusion .....................................................................................................................55

References .....................................................................................................................................57
PAGE INTENTIONALLY LEFT BLANK
2023 Options for Deposit Insurance Reform | 1

Section 1: Executive Summary

The Federal Deposit Insurance Corporation was 

established in 1933 in response to widespread bank 

runs and bank failures that inflicted severe damage 

on the U.S. economy. Although many banks have 

failed since then, all insured deposits have been fully 

protected by the FDIC.

Trends in uninsured deposits have increased the 

exposure of the banking system to bank runs. At its 

peak in 2021, the proportion of uninsured deposits in 

the banking system was 46.6 percent, higher than at 

any time since 1949. Uninsured deposits are held in a 

small share of accounts but can be a large proportion 

of banks’ funding, particularly among the largest 

10 percent and largest 1 percent of banks by asset 

size. Large concentrations of uninsured deposits, or 

other short-term demandable liabilities, increase the 

potential for bank runs and can threaten financial 

stability. Uninsured depositor runs triggered the 

failures of Silicon Valley Bank and Signature Bank in 

March 2023, respectively the second and third largest 

bank failures in the FDIC’s history at the time. 

Technological changes may increase the risk of 

bank runs. The speed with which information, or 

misinformation, is disseminated and the speed with 

which depositors can withdraw funds in response 

to information may contribute to faster, and more 

costly, bank runs. The spread of information and the 

ability of depositors to transfer funds overnight and on 

weekends may make it more challenging to promptly 

intervene in a bank run.

A primary objective of deposit insurance is to 

promote financial stability. By issuing demandable 

deposits and lending long term, banks are subject to 

runs. When there is a bank run, a bank may be forced 

to liquidate assets inefficiently. The bank may need 

to be sold on short notice, reducing its valuation 

and increasing resolution costs. A bank run may also 

lead to contagion, as demandable liability holders at 

similarly situated banks withdraw their funds, leading 

to increased stress in the banking system. Depositors 

who lose access to their funds in bank failures may 

be unable to meet obligations coming due, resulting 

in financial stress to firms and households. Deposit 

insurance reduces these risks.

Protecting small depositors, who hold most of 

the deposit accounts, has been an objective of the 

deposit insurance system since its founding. As of 

December 2022, more than 99 percent of deposit 

accounts were under the $250,000 deposit insurance 

limit. Monitoring bank solvency involves fixed costs, 

making it both impractical and inefficient for small 

depositors to conduct due diligence. Monitoring 

banks is also time consuming and requires financial, 

regulatory, and legal expertise that cannot be expected 

of small depositors. Deposit insurance protects small 

depositors’ savings, without these undue costs and 

burdens. 

Deposit insurance can result in moral hazard and 

can increase bank risk-taking. Moral hazard is the 

incentive to take on greater risk as a result of being 

protected from the consequences of risk-taking. 

Since insured depositors face no risk of loss and little 

incentive to withdraw funds, risks and embedded 

losses can sometimes build over time at banks funded 

largely by insured deposits. Therefore, changes to 

deposit insurance must consider both the financial 

stability benefits of more coverage and the possible 

implications for risk-taking in the banking system.

Regulation and supervision are essential for helping 

the deposit insurance system meet its objectives 

and constrain moral hazard. Tools such as capital 

requirements and supervision of bank growth 

can reduce moral hazard that arises from deposit 

insurance. Meanwhile, liquidity regulation and interest 

rate risk regulation and supervision can complement 

deposit insurance to reduce run risk. Expansion of 
2 | 2023 Options for Deposit Insurance Reform

long-term debt requirements may both increase 

financial stability by facilitating bank resolution and 

reduce moral hazard by increasing market discipline 

from debtholders. 

Bank runs are a costly form of market discipline 

to mitigate moral hazard. Bank runs by uninsured 

depositors transfer losses to the FDIC and other 

market participants, increase risk to the system by 

preventing an orderly resolution of the bank, and can 

increase risk to stakeholders at other banks through 

contagion. Still, deposit withdrawals can force the 

closure of banks with unsafe business practices not 

otherwise addressed. The threat of bank runs may also 

deter bank risk-taking if bank management perceives 

that the risk of a run threatens bank franchise value. 

Forms of market discipline that similarly constrain 

bank management, but not through runs, are 

preferable from a financial stability perspective.

Even with deposit insurance, non-deposit creditors 

and shareholders may still constrain bank risktaking. However, deposit insurance may reduce the 

cost of deposit funding and so reduce bank incentives 

to raise non-deposit funding. Policies that promote 

reliance on other market participants to constrain 

bank risk-taking can dampen moral hazard concerns 

related to deposit insurance. 

Deposit insurance has broader market effects.

Banks compete for deposits on several dimensions. 

As deposit insurance increases, deposits become a 

relatively more attractive asset. In addition, as deposit 

insurance coverage increases, demand for deposits 

may rise, leading to a decline in deposit interest rates 

and an increase in bank reliance on deposit funding. 

Understanding the broader market implications of 

changes to deposit insurance is important for any 

policy decision.

Deposit insurance is not free and must be funded 

through assessments on the banking system. 

Although the challenges posed by concentrations 

of uninsured depositors in the system are driven 

primarily by a small subset of depositors at a subset 

of banks, increases to the deposit insurance limit 

increase the size of the Deposit Insurance Fund (DIF, or 

the Fund) necessary for a given target ratio of the Fund 

to insured deposits. Increasing the size of the Fund 

must be done through increased assessments 

on banks.

Additional policies can support deposit insurance 

objectives and mitigate undesired consequences.

Deposit insurance pricing is a tool that promotes fund 

adequacy, encourages the fair allocation of the cost of 

deposit insurance across banks and, to some extent, 

influences bank risk-taking. Requiring collateralization 

of large uninsured deposits may also be considered an 

option to limit bank reliance on uninsured deposits, 

reduce depositor run incentives, and increase 

depositor discipline. Limiting the convertibility of 

large uninsured deposits would restrict the capacity 

of depositors to run and may improve depositor 

discipline in a manner that does not threaten financial 

stability. 

This report evaluates three options to reform the 

deposit insurance system. Ordered only for clarity 

of discussion, Limited Coverage maintains the 

current structure of deposit insurance in which 

there is a finite deposit insurance limit that applies 

across depositors and types of accounts. Limited 

Coverage includes the possibility of an increased, 

but finite, deposit insurance limit. Unlimited 

Coverage provides unlimited deposit insurance. 

Targeted Coverage allows for different levels of 

deposit insurance coverage across different types of 

accounts and focuses on higher coverage for business 

payment accounts. Targeted Coverage includes the 

possibility that some account types receive unlimited 

coverage, while others do not. Although each option 

has strengths and weaknesses, Targeted Coverage 

captures many of the financial stability benefits of 

expanded coverage while mitigating many of the 

undesirable consequences.

Each option should be viewed alongside other 

policy changes. Because each of the options has 

relative strengths and weaknesses, their effectiveness 

depends upon the extent to which other policies are 

pursued simultaneously. Regulation and supervision 

and deposit insurance pricing can be used to 

support financial stability objectives and mitigate 

consequences. In addition, limiting the convertibility 

of large uninsured deposits, requiring collateralization 
2023 Options for Deposit Insurance Reform | 3

of large uninsured deposits, simplifying deposit 

insurance, or providing excess deposit insurance 

may be considered alongside Limited Coverage and 

Targeted Coverage options.

Limited Coverage maintains the current system of 

deposit insurance and does not, by itself, address 

the run risk associated with high concentrations 

of uninsured deposits, even with an increase to 

the deposit insurance limit. Increasing the limit by 

an order of magnitude (for example, to millions of 

dollars) is insufficient to cover many of the largest 

uninsured deposit accounts, the sudden withdrawal 

of which may be sufficient to destabilize segments of 

the banking system. Therefore, achieving financial 

stability goals in a system with large quantities of 

uninsured demandable deposits should be pursued 

alongside other tools that limit bank reliance on 

uninsured demandable deposits, reduce the incentive 

of uninsured depositors to run, or reduce the ability 

of uninsured depositors to run. Small and mediumsize businesses that hold deposits at ranges modestly 

above the current limit may benefit from an increase 

to the deposit insurance limit. Absent an increase in 

the limit by multiple orders of magnitude, the overall 

effects on other markets and the adequacy of the DIF 

are likely to be small.

Unlimited Coverage—fully insuring all deposits—

effectively removes run risks but may have large 

effects on bank risk-taking, the level of deposit 

insurance assessments on banks, and broader 

financial markets. Insurance backed by the federal 

government provides the best deterrent to run risk. 

However, full deposit insurance may also generate 

large inflows of deposit funding to banks. It also would 

remove depositor discipline and may induce excessive 

risk-taking by banks. In addition, full deposit insurance 

may lead to significant disruptions for asset markets 

for which deposits are a substitute. Other tools, such 

as regulation, supervision, and pricing, may be used 

along with insurance to reduce disruptions to other 

asset markets and to dampen increased moral hazard. 

Full deposit insurance would increase the size of the 

DIF needed to achieve any given ratio of the DIF to 

insured deposits by about 70 to 80 percent, ignoring 

possible inflows of deposits, leading to significantly 

higher assessments on banks. 

Targeted Coverage would provide substantial 

additional coverage to business payment accounts 

without extending similar insurance to all deposits, 

yielding large financial stability benefits relative 

to its costs. A challenge to Targeted Coverage is 

the need to delineate between business payment 

deposits and other deposits. Extending deposit 

insurance to business payment accounts may have 

relatively large financial stability benefits, with fewer 

costs to moral hazard relative to increasing the limit 

for all accounts, as in the other options. It is difficult 

for businesses to maintain payment accounts across 

multiple banks to obtain increased deposit insurance 

coverage. Payment accounts rarely involve weighing 

a risk-return tradeoff typical of investments that form 

the basis of desirable market discipline. Further, losses 

on business payment accounts are most likely to 

spill over to payroll and other businesses. However, 

significant challenges in Targeted Coverage are 

distinguishing accounts that merit higher coverage 

from those that do not and limiting the ability of 

depositors and banks to circumvent those distinctions. 

Extending considerably higher deposit insurance to 

business payment accounts may require a significant 

increase in assessments.

Overview: This report highlights the limitations of the 

current deposit insurance system to achieve financial 

stability objectives in an environment with large 

quantities of uninsured deposits and policy options 

that may be considered to help the deposit insurance 

system meet those objectives. Table 1.1 provides 

a summary of the advantages and disadvantages 

of the options along with complementary tools 

for consideration. Section 2 discusses the events 

of March 2023 and broader industry trends that 

give rise to financial stability concerns. Section 3 

provides a brief history of changes to the U.S. deposit 

insurance system. Section 4 outlines the objectives 

and consequences of deposit insurance. Section 5 

discusses tools that may be used in conjunction with 

deposit insurance to achieve policy objectives. Section 

6 discusses options and considerations for reform to 

the deposit insurance system. Section 7 concludes.
4 | 2023 Options for Deposit Insurance Reform

TABLE 1.1

Summary of Advantages and Disadvantages of the Options for Deposit Insurance Reform

Advantages Disadvantages Potential Complementary Tools

Limited Coverage • Best tested model of deposit 

insurance 

• Results in a limited effect on 

moral hazard

• Has a limited effect on Deposit 

Insurance Fund (DIF) adequacy

• Creates limited disruption in 

other markets

• Raises financial stability concerns 

from uninsured deposits at risk

• Consider liquidity regulations 

that reduce reliance on uninsured 

deposits

• Incorporate additional liquidity 

risk measures into pricing

• Place limits on convertibility for 

large deposits

• Implement deposit insurance 

simplification coupled with an 

increase in coverage to address 

transparency concerns and 

complexity

• Consider long-term subordinated 

debt requirement to facilitate 

resolution

Unlimited Coverage • Largely eliminates bank runs

• Enhances transparency—clear 

understanding of insurance status 

for depositors

• Simplifies resolution process

• Eliminates depositor discipline; 

burden of market discipline falls 

to debtholders and stockholders

• Potentially broader market 

disruptions 

• Generates large effects on DIF and 

increased assessments

• Consider long-term subordinated 

debt requirements and capital 

requirements to mitigate moral 

hazard

• Consider regulation that limits 

reliance on deposits

• Consider interest rate restrictions

Targeted Coverage • Targets coverage to meet ongoing 

payment and operational needs 

of businesses

• Increases financial stability, 

depending on the increase in 

coverage

• Results in a limited decrease in 

depositor discipline depending on 

types of accounts covered

• Previous experience (Transaction 

Account Guarantee Program)

• Challenging to define type of 

accounts, risk of regulatory 

arbitrage

• Decrease in transparency due to 

complexity

• Increases complexity of 

resolutions

• Requires additional DIF funding

• Consider interest rate restrictions 

on accounts for which additional 

coverage is extended

• Consider simplification of 

ownership categories to decrease 

complexity

• If large accounts remain partially 

insured, require that large 

deposits are secured

• If large accounts remain 

partially insured, place limits on 

convertibility for large deposits
2023 Options for Deposit Insurance Reform | 5

Section 2: Introduction and Background

1The current deposit insurance requirements are outlined in the Federal Deposit Insurance Act, 12 U.S.C. 1811, et seq.

2 “Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC,” press release, March 12, 2023, https://www.fdic.gov/news/press-releases/2023/

pr23017.html. 

3Board of Governors of the Federal Reserve System, “Federal Reserve Board Announces It Will Make Available Additional Funding to Eligible Depository 

Institutions to Help Assure Banks Have the Ability to Meet the Needs of All Their Depositors,” press release, March 12, 2023, https://www.federalreserve.gov/

newsevents/pressreleases/monetary20230312a.htm.

Introduction

The Federal Deposit Insurance Corporation was 

established in 1933 in response to widespread bank 

runs and bank failures that inflicted severe damage 

on the U.S. economy.1 Although many banks have 

failed since, with the advent of FDIC insurance all 

insured deposits have been fully protected.

The events of March 2023 were a reminder that the 

risk of bank runs can still be consequential. Runs by 

uninsured depositors caused the failures of Silicon 

Valley Bank and Signature Bank, respectively the 

second and third largest bank failures in the FDIC’s 

history at the time. On March 12, 2023, the Secretary 

of the Treasury, acting on the recommendations of the 

FDIC and the Federal Reserve and after consultation 

with the President, invoked the statutory systemic risk 

exception to protect all depositors in connection with 

each of the two failures.2 On the same day, the Federal 

Reserve announced the creation of the Bank Term 

Funding Program to lend to depository institutions at 

par against eligible collateral.3 The agencies took these 

actions to protect the U.S. economy by strengthening 

public confidence in the banking system.

These and subsequent events have stimulated a 

robust policy discussion about whether changes 

to the U.S. federal deposit insurance system are 

needed to ensure that it continues to achieve the 

important objectives that Congress established. These 

include promoting public confidence in the banking 

system and supporting financial stability, protecting 

small savers, and containing the cost of the deposit 

insurance system through regulation, supervision, 

deposit insurance pricing, and insurance fund 

management.

This report describes options for reform of the 

deposit insurance system and tools that can be used 

to complement the system. The proposed options 

require an act of Congress, though some aspects of 

the report lie within the scope of FDIC rulemaking 

authority. 

The events of March 2023 have also stimulated 

discussion of whether changes are needed to the 

framework of bank supervision and regulation. These 

issues merit serious attention. Recommendations 

regarding specific changes to supervision and 

regulation are, however, beyond the scope of 

this report.
6 | 2023 Options for Deposit Insurance Reform

Background

The conditions that led to the failure of Silicon Valley 

Bank and Signature Bank, the decision to make 

systemic risk determinations in connection with the 

two failures, and the establishment of the Federal 

Reserve’s special liquidity program provide important 

context for the remaining discussion in this report.

The Bank Failures of March 20234

On March 8, 2023, Silvergate Bank, with about $11.3 

billion in assets at year-end 2022, announced that it 

would wind down its operations and self-liquidate. 

In retrospect, this announcement was a precursor 

to the events of the next few days. Silvergate had 

a business model focused on providing services to 

digital asset firms. From year-end 2018 through yearend 2021, Silvergate grew its assets eightfold, from 

about $2 billion to about $16 billion. The bank’s asset 

growth was funded by uninsured deposits, which 

at year-end 2021 comprised about 98 percent of its 

deposits. Amid concerns about market developments 

regarding digital assets, in the fourth quarter of 

2022 Silvergate experienced a significant outflow of 

deposits (including from the digital asset exchange 

FTX). To cover deposit withdrawals, Silvergate sold 

debt securities, resulting in a net earnings loss of $1 

billion. On March 1, Silvergate reported that recent 

events raised concerns about its ability to operate as 

a going concern, and on March 8 it announced that it 

would self-liquidate. 

Silicon Valley Bank (SVB) had assets of $209 billion 

and deposits of $191 billion as of year-end 2022. Its 

deposits were associated with commercial and private 

banking clients, mostly linked to businesses financed 

through venture capital. From year-end 2018 through 

year-end 2021, SVB almost quadrupled its asset size, 

with the growth funded almost entirely by uninsured 

deposits. On its year-end 2022 Consolidated Report of 

Condition and Income (Call Report), SVB reported that 

94 percent of its domestic deposits were uninsured.

4Much of the information in this section is from “Recent Bank Failures and the Federal Regulatory Response,” United States Senate Committee on Banking, 

Housing, and Urban Affairs, March 28, 2023, https://www.banking.senate.gov/hearings/recent-bank-failures-and-the-federal-regulatory-response, and 

“The Federal Regulators’ Response to Recent Bank Failures,” United States House of Representatives Financial Services Committee, March 29, 2023, https://

financialservices.house.gov/calendar/eventsingle.aspx?EventID=408664, and the accompanying written testimony.

5SVB Financial Group, “SVB Financial Group Announces Proposed Offerings of Common Stock and Mandatory Preferred Stock,” press release, March 8, 2003, 

https://ir.svb.com/news-and-research/news/news-details/2023/SVB-Financial-Group-Announces-Proposed-Offerings-of-Common-Stock-and-MandatoryConvertible-Preferred-Stock/default.aspx.

6 In early research, Cookson, Fox, Gil-Bazo, Imbet, and Schiller (2023) analyze the effect of social media on bank stock market losses, including those at SVB.

7 FDIC, “FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California,” press release, 

March 10, 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html.

SVB also had substantial unrealized losses on 

securities, amounting to 104 percent of tier 1 capital 

as of year-end 2022. These losses represented the 

decrease in the fair value of long-maturity securities 

caused by the substantial increase in interest rates 

that occurred in 2022, which continued into 2023. The 

combination of large volumes of uninsured deposits 

and large amounts of underwater securities elevated 

the risk that the bank would be forced to sell securities 

at a loss to cover deposit withdrawals.

On March 8, the same day that Silvergate announced 

that it would self-liquidate, SVB announced a 

proposed offering of common stock and mandatory 

convertible preferred stock.5 The announcement 

noted that SVB had completed the sale of a substantial 

portion of its available-for-sale securities portfolio 

that day and reported that more than $21 billion of 

securities had been sold at an after-tax loss of $1.8 

billion. The announcement, and warnings about SVB 

in social media posts by private investors, escalated 

uninsured depositor concerns about the bank: by 

the end of the day on March 9, $42 billion in deposits 

had left the bank.6 The California Department of 

Financial Protection and Innovation closed the bank 

on Friday morning, March 10, and appointed the FDIC 

as receiver. 

The FDIC’s announcement on Friday morning of 

its appointment as receiver for SVB indicated that 

uninsured depositors of SVB would receive an 

advance dividend and a receivership certificate for 

the rest of their funds.7 This approach was less costly 

to the DIF than it would have been to fully protect 

all uninsured depositors. Under the statutory Least 

Cost Test, the FDIC could not protect uninsured 

depositors unless a systemic risk determination had 

been made by the Secretary of the Treasury, acting 

on the recommendations of the FDIC and the Federal 

Reserve, and after consultation with the President. 

The announcement that the uninsured depositors of 

SVB had not been fully protected reverberated through 
2023 Options for Deposit Insurance Reform | 7

the financial markets on Friday and into the weekend 

and precipitated the failure of Signature Bank. 

Signature had year-end 2022 assets of $110 billion 

and deposits of $89 billion. Its business included 

a significant focus on the digital asset industry. 

Signature grew its assets about 2.5-fold from yearend 2018 to year-end 2021. Like SVB and Silvergate, 

its rapid growth was funded with uninsured deposits. 

Almost 90 percent of Signature’s deposits at year-end 

2022 were uninsured. Signature also had exposure to 

unrealized losses on securities amounting to about 

32 percent of its tier 1 capital. 

Like Silvergate, Signature began losing deposits in 

2022 amid unfavorable developments in the digital 

asset industry. With the announcement of the failure of 

SVB on Friday, Signature experienced an acceleration 

of deposit outflows that had begun the previous day. 

It lost 20 percent of its deposits in a matter of hours on 

March 10 and had a negative balance with the Federal 

Reserve at the close of business. The New York State 

Department of Financial Services closed Signature on 

Sunday, March 12, and appointed the FDIC as receiver.8

Following these developments, the bank regulatory 

agencies had significant concerns that uninsured 

depositors would withdraw funds rapidly from other 

banks. The agencies had already received reports on 

March 10 from several institutions with large amounts 

of uninsured deposits that their depositors had begun 

to withdraw funds.9 Cascading bank runs could have 

caused widespread losses to business payroll accounts 

and more widespread financial contagion. 

The Treasury, FDIC, and Federal Reserve agreed 

that systemic risk determinations for both SVB and 

Signature Bank were in the public interest. These were 

announced on Sunday, March 12, and on the same day 

the Federal Reserve announced the establishment of 

the Bank Term Funding Program.10

The self-liquidation of Silvergate and the failures 

of SVB and Signature stemmed from a confluence 

8 FDIC, “FDIC Establishes Signature Bridge Bank, N.A, as Successor to Signature Bank, New York, NY,” press release, March 12, 2023, https://www.fdic.gov/news/

press-releases/2023/pr23018.html.

9The March 31, 2023, Federal Reserve Statistical Release H.8, Tables 7 and 9, available at https://www.federalreserve.gov/releases/h8/20230331/h8.pdf, 

reported that in the week ending March 15, the 25 largest domestically chartered commercial banks in the United States gained $120.2 billion in deposits, while 

smaller domestically chartered commercial banks in the United States lost $184.6 billion in deposits.

10 “Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC,” press release, March 12, 2023, https://www.fdic.gov/news/pressreleases/2023/pr23017.html.

11As noted earlier, the uninsured deposits of Silvergate were 98 percent of its deposits at year-end 2022. Subsequently, deposits decreased at the institution so 

that its proportion of uninsured deposits was much lower by the time it announced its self-liquidation. 

of factors, some of which were common to each. 

All three banks grew extremely rapidly before they 

failed. Experience has shown that rapid growth 

using short-term funding is a risky business model. 

In effect, significant amounts of deposits at these 

banks behaved as short-term funding, rather than 

stable relationship deposits. All three also had varying 

degrees of exposure to unrealized losses in their 

securities portfolios. For these banks, the risk that 

securities would need to be sold at a loss to cover 

deposit withdrawals became a reality.

Finally, and of particular importance given the focus 

of this report on the deposit insurance system, the 

vast majority of the deposits of all three banks were 

uninsured.11 For practical purposes, in terms of their 

potential exposure to depositor runs and consequent 

liquidity risk, these banks were in effect operating as 

uninsured institutions. 

Susceptibility to Uninsured Deposit Runs 

May Have Increased

Abstracting from the specifics of the events of March 

2023, several developments suggest that the banking 

system has evolved in ways that could increase its 

exposure to deposit runs. These developments include 

the amplification of concerns through social media 

and the speed of some depositor responses, the 

interaction of failure-resolution events and depositor 

behavior, and the increased volume and proportion of 

uninsured deposits in the banking system. 

The risk of depositor runs is inherent in banking, 

where long-term assets are funded by short-term 

deposit liabilities. The FDIC was established largely 

in response to the widespread bank runs of the 

1930s. Depositors who are unprotected by deposit 

insurance may consider moving their funds if they 

are concerned about the liquidity or solvency of 

their bank. If uninsured depositors believe that other 

depositors share their concerns and that a run on the 

bank and potential failure are imminent, then they 

may act quickly to withdraw their funds. Synchronous 
8 | 2023 Options for Deposit Insurance Reform

deposit withdrawals may then force the liquidation of 

assets and cause the failure of the bank. A bank failure 

caused by a run can be a self-fulfilling prophecy.

It is important to recognize that insured depositors do 

not have an incentive to run based on fears that their 

deposits are at risk. For banks with material reliance 

on uninsured deposits, however, a scenario in which 

uninsured depositors become sufficiently concerned 

about their risk of loss could create the conditions 

for a run.

The ubiquity of social media and mobile banking may 

mean that bank runs, when they happen, happen 

faster. The role of social media in the SVB depositor 

run illustrates the dynamics that can arise. Social 

media posts advised depositors to withdraw funds 

from SVB, and uninsured depositors did so all at 

once. The concentration of these large deposits 

in technology industry firms and individuals who 

appear to have been part of closely overlapping 

virtual communities may have contributed to the 

synchronized nature of the deposit outflows. 

Another consideration is that the law governing the 

FDIC’s treatment of uninsured deposits in bank failures 

may influence how attuned uninsured depositors 

are to the possibility that they would incur losses 

in a bank failure. Before 1992, the FDIC was not 

subject to the Least Cost Test and therefore generally 

protected uninsured deposits. The Least Cost Test 

came into being with the Federal Deposit Insurance 

Corporation Improvement Act (FDICIA), implemented 

in 1992.12 It required the FDIC to resolve banks in 

a way that is least costly to the DIF, considering 

only the specific resolution transaction at hand. If 

covering the uninsured deposits is not least costly, as 

may be the case when the proportion of uninsured 

deposits is large, the FDIC cannot protect uninsured 

deposits without a systemic risk determination 

from the Secretary of the Treasury, acting on the 

12Pub. L. 102-242.

13Chapter 3 of FDIC (2017) provides detail on the use of the systemic risk exception for individual institutions during the 2008–2013 crisis.

14Additional detail about the FDIC’s Transaction Account Guarantee Program can be found in Section 3 of this report.

15Pub. L. 102-242.

16Pub. L. 116-136.

17 For details, see 12 U.S.C. 5612. 

18See section 360.9 of the FDIC’s regulations, titled “Large-Bank Deposit Insurance Determination Modernization,” available at https://www.fdic.gov/regulations/

resources/largebankdim/08final717.pdf, and part 370 of the FDIC’s regulations, titled “Recordkeeping for Timely Deposit Insurance Determination,” available at

https://www.fdic.gov/regulations/resources/recordkeeping/index.html.

19 For a discussion of loss experience since 1992, see Section 3 of this report.

recommendations of the FDIC and Federal Reserve 

and after consultation with the President.

FDICIA’s systemic risk determination process remained 

untested until 2008, when it was invoked to address 

distress at several large banking organizations.13 The 

systemic risk determination process was also used 

to create the FDIC’s Transaction Account Guarantee 

Program (TAG program) that extended temporary full 

deposit insurance coverage to noninterest-bearing 

transactions accounts.14 This use of the systemic risk 

determination process likely helped to ensure that 

uninsured deposit runs did not play an important 

destabilizing role in the 2008–2013 banking crisis.

Under the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act),15 and as 

amended in 2020 by the Coronavirus Aid, Relief, and 

Economic Security Act (CARES Act),16 the FDIC must 

obtain congressional approval for any widely available 

guarantee of the obligations of depository institutions 

or depository institution holding companies.17 The 

FDIC has issued regulations applicable to certain large 

banks to facilitate its ability to make timely deposit 

insurance determinations in the event of failure.18

With these developments, it is possible that relative to 

the framework for handling uninsured deposits that 

existed in the past, sophisticated market participants 

could now be more attuned to the possibility of 

uninsured depositors incurring losses.

Another important consideration that may influence 

the likelihood of uninsured depositors running on their 

bank is the loss experience of uninsured depositors 

in earlier bank failures.19 The announcement of a 

resolution in which uninsured deposits are not fully 

protected may create concern among uninsured 

depositors at other banks, a dynamic that may be 

amplified by the rapid spread of information on 

social media.
2023 Options for Deposit Insurance Reform | 9

Finally, by several measures, the reliance on uninsured 

deposits by the banking system has increased, 

particularly among larger banks. 

Banking System Reliance on Uninsured 

Deposits Is Increasing

Following the 2008–2013 banking crisis, the reliance 

by the U.S. banking system on uninsured deposits 

grew dramatically, both in dollar volume and as 

a proportion of overall deposit funding.20 From 

year-end 2009 through year-end 2022, uninsured 

domestic deposits at FDIC-institutions increased at 

an annualized rate of 9.8 percent, from $2.3 trillion 

to $7.7 trillion.21 The trends are comparable when 

using alternative methods in calculating uninsured 

deposits.22 In 2022 inflation-adjusted dollars, the value 

of uninsured deposits peaked in 2021 and remained 

greater in 2022 than at any point in the FDIC’s history 

prior to 2021.23 The 2022 total value of uninsured 

deposits was more than five times its real value in 

1990. As shown in Figure 2.1, the portion of all deposits 

uninsured at its peak in 2021 was at its highest level 

since 1949.

While many banks have increased their reliance 

on uninsured deposits, the trend has been most 

pronounced among the largest banks. Growing 

concentrations of uninsured deposits at large banks 

make the banking system potentially more vulnerable 

to depositor runs such as those in March 2023.

Figure 2.2 plots the share of banks with uninsured 

deposits greater than 50 percent of domestic deposits 

based on asset size. Due to consolidation of the 

banking industry over the period, asset size is shown 

using percentiles of the asset size distribution in 

20The discussion in this section is focused on deposits in domestic offices of U.S. banks and the proportions of those deposits that are insured and uninsured. 

Deposits in foreign offices of U.S. banks are not insured by the FDIC. Some jurisdictions may provide some deposit insurance coverage of these deposits; the 

amounts of coverage, if any, vary by jurisdiction.

21The estimates used in this sentence are derived from FDIC Quarterly Banking Profile (QBP) 2010, Vol. 4, No. 1, Table I-B and QBP 2023, Vol. 17, No. 1, Table I-C. In 

this report, for purposes of analytical consistency over time, we calculate aggregate uninsured domestic deposits as domestic deposits minus estimated insured 

deposits. Because estimated insured deposits include selected deposit liabilities not included in reported domestic deposits, the calculation yields an estimate 

for uninsured deposits that is somewhat less than the total amount of uninsured deposits reported by banks. For example, at year-end 2022, banks reported $8.2 

trillion in uninsured domestic deposits. Generally, Call Report items do not match up with the 14 ownership rights and capacities used by the deposit insurance 

determination process. 

22Estimated uninsured deposits that banks report may be inaccurate or inconsistent across quarters and institutions. There are at least three reasons the 

estimates may overstate the FDIC’s exposure to uninsured deposits if a bank failure occurs. First, uninsured depositors typically flee institutions exhibiting 

deteriorating financial health. Second, some depositors reduce their balances or adjust their allocation of deposits across accounts to increase explicit deposit 

insurance coverage. Third, deposits that initially appear uninsured are actually insured once FDIC ownership rights and capacities are considered. It is also 

possible that uninsured deposits are understated if it is the case that deposits in accounts below the insurance limit are uninsured after aggregating to a 

depositor by ownership category at a bank.

23Estimates of uninsured deposits for this statement are from FDIC Annual Reports. 

24The trend line for the top 10 percent does not include the banks in the top 1 percent.

25Accounts with balances above the deposit insurance limit are not necessarily uninsured. For example, a brokerage sweep account at a bank could be very large 

while being fully insured to the individual sweep account customers.

each period rather than asset thresholds, namely the 

top 1 percent, the top 10 percent, and the bottom 

90 percent.24 For context, at year-end 2022, the size 

cutoffs were $57 billion for the top 1 percent and $2.4 

billion for the top 10 percent. The percentage of banks 

in the larger size groups that are reliant on uninsured 

deposits is increasing. For example, as of year-end 

2009, 13 percent of banks in the largest asset size 

group had more than half their domestic deposits 

uninsured; at year-end 2022, 40 percent of those 

banks had uninsured deposits of more than half their 

domestic deposits.

Figure 2.2 also shows that a non-negligible share of 

banks in the top 10 percent asset size bucket had 

more than half of their domestic deposits uninsured. 

And among all FDIC-insured institutions, a meaningful 

degree of reliance on uninsured deposits is not 

uncommon: about 28 percent of FDIC-insured 

institutions had more than 33 percent of their 

domestic deposits uninsured at year-end 2022.

Uninsured deposits are disproportionally concentrated 

in the largest banks. At year-end 2022, banks in the 

top 1 percent of the asset size distribution held about 

72 percent of deposits in domestic offices but about 

77 percent of uninsured deposits in domestic offices. 

These uninsured deposits come from a small subset of 

deposit accounts: accounts with balances exceeding 

$250,000 comprised less than 1 percent of all deposit 

accounts by number at year-end 2022.25 Banks in the 

top 1 percent by assets, however, held about 66 percent 

of all such large accounts.

Finally, since the onset of the COVID-19 pandemic, 

demand deposits as a share of domestic deposits have 
10 | 2023 Options for Deposit Insurance Reform

FIGURE 2.1

Uninsured Deposits Are Growing as a Share of Domestic Deposits

Source: FDIC.

Note: Figure shows the estimated share of all domestic deposits that are uninsured.

Percent

0

10

20

30

40

50

60

70

1934

1938

1942

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2022

Percent

Source: FDIC.

Note: Top 1 percent is the top 1 percent of banks by total assets ($54.0 billion in 2022). Top 10 percent is the top 10 percent of banks by total assets less the 

top 1 percent ($2.4 billion in 2022). Bottom 90 percent is all other insured institutions.

0

10

20

30

40

50

60

Bottom 90 Percent Top 10 Percent Top 1 Percent

FIGURE 2.2

The Share of Banks With More Than 50 Percent Uninsured Domestic Deposits

Is Increasing Across All Bank Sizes

1991 Q1

1992 Q4

1994 Q3

1996 Q2

1998 Q1

1999 Q4

2001 Q3

2003 Q2

2005 Q1

2006 Q4

2008 Q3

2010 Q2

2012 Q1

2013 Q4

2015 Q3

2017 Q2

2019 Q1

2020 Q4

2022 Q3
2023 Options for Deposit Insurance Reform | 11

increased sharply; demand deposits include both 

insured and uninsured deposits. Figure 2.3 shows that 

while the demand deposit share has increased for all 

bank asset sizes, the relative change has been greater 

for banks in the top 10 percent and top 1 percent of 

assets than it has for smaller banks. At year-end 2022, 

the top 1 percent of banks by assets had 32 percent of 

their deposits in demand accounts, up from 14 percent 

before 2020. 

It is not clear whether the increase in the proportion of 

demand deposits will be an enduring structural 

change or will prove to be a transitory effect of the 

deposit surge associated with the COVID-19 pandemic 

and the policies used to address it. Even if the trend of 

increasing demand deposits persists, its implications 

for the stability of deposits are unclear. As the March 

2023 events demonstrated, experience with deposit 

outflows is not necessarily a reliable guide to the 

future. To the extent large demand deposits may be 

payroll or other business payment accounts, however, 

such deposits may be relatively more sensitive to 

adverse developments affecting banks. 

0

5

10

15

20

25

30

35

Percent

Source: FDIC.

Note: Top 1 percent is the top 1 percent of banks by total assets ($54.0 billion in 2022). Top 10 percent is the top 10 percent of banks by total assets less the 

top 1 percent ($2.4 billion in 2022). Bottom 90 percent is all other insured institutions.

FIGURE 2.3

Demand Deposit Share of Domestic Deposits Is Increasing Across Bank Sizes

1991 Q1

1992 Q3

1994 Q1

1995 Q3

1997 Q1

1998 Q3

2000 Q1

2001 Q3

2003 Q1

2004 Q3

2006 Q1

2007 Q3

2009 Q1

2010 Q3

2012 Q1

2013 Q3

2015 Q1

2016 Q3

2018 Q1

2019 Q3

2021 Q1

2022 Q3

Bottom 90 Percent Top 10 Percent Top 1 Percent
PAGE INTENTIONALLY LEFT BLANK
2023 Options for Deposit Insurance Reform | 13

26The availability of deposit insurance is not limited to U.S. citizens and residents; any person or entity that maintains deposits in an insured bank receives 

deposit insurance coverage as provided under the Federal Deposit Insurance Act.

27 FDIC, “General Principles of Insurance Coverage,” https://www.fdic.gov/resources/deposit-insurance/diguidebankers/documents/general-principles.pdf.

28On January 21, 2022, the FDIC published a final rule to simplify the deposit insurance regulations for trust accounts. The changes, effective April 1, 2024, 

will reduce the number of ownership categories from 14 to 13.

29The level was set in 1933 and effective in 1934.

Section 3: History of Deposit Insurance 

in the U.S.

This section examines changes to deposit insurance 

coverage since the FDIC was established, including 

periodic changes to the standard maximum deposit 

insurance amount (SMDIA) and the periods when 

differential coverage was available for different 

account types. It includes a detailed discussion of the 

most recent differential deposit insurance coverage 

treatment by account type, the FDIC’s 2008 TAG 

program, and a similar program put in place under 

Dodd-Frank in 2010. The section then discusses 

changes in the composition of deposits since 1984 and 

provides information on uninsured depositor losses 

over the past three decades. The section ends by 

looking briefly at technological and recent regulatory 

changes, and relevant upcoming changes to the 

financial system.

The SMDIA applies to each depositor by ownership 

right and capacity, or ownership category, for each 

bank and is based on federal statutes and FDIC 

regulations.26 The FDIC’s “General Principles of 

Insurance Coverage” note that “All deposits held by a 

depositor in a particular ownership category—whether 

in one account or multiple deposit accounts—are 

aggregated and insured up to the SMDIA for that 

ownership category.”27 As of May 2023, there were 

14 ownership categories.28 In practice, the ability of 

depositors to open accounts under multiple ownership 

categories allows depositors to access deposit 

insurance coverage above $250,000 at a single bank. 

This section refers to the SMDIA as $250,000, rather 

than effective coverage, unless noted otherwise.

The History of FDIC 

Insurance Coverage 

Limits

Congress has increased the SMDIA for FDIC insurance 

seven times since it was originally set at $2,500 in 

193329 to keep pace with inflation, maintain depositor 

confidence, and help smaller institutions. Particularly 

during the mid-1960s to 1980, there was an added 

purpose of helping the thrift industry. The statutory 

changes to the SMDIA are presented in Table 3.1. 

Given the lengthy period with no increase to the 

SMDIA by the early 2000s, inflation-adjusted increases 

TABLE 3.1

Congress Has Increased the Standard Maximum Deposit Insurance Amount Seven Times Since 1934

Year Amount ($)

1934*

1934

1950

1966

1969

1974

1980

2008†

2,500

5,000

10,000

15,000

20,000

40,000

100,000

250,000

Source: FDIC.

*The initial coverage limit was $2,500 from January 1 to June 30, 1934. 

†

Temporary increase; made permanent in 2010.
14 | 2023 Options for Deposit Insurance Reform

to the SMDIA were anticipated under a provision of 

the Federal Deposit Insurance Reform Act of 2005 

(FDIRA).30 These increases were to begin in 2010, but 

the increase to $250,000 in 2008, first temporary and 

then permanent, effectively superseded any such costof-living adjustment; it likely will continue to do so for 

a considerable period absent new legislation, since by 

statute the adjustment is based upon the prevailing 

$100,000 level in 2005.31 Figure 3.1 compares the 

nominal SMDIA to the coverage level in 2008 dollars 

(the last time the SMDIA was raised) to illustrate 

how inflation has affected the SMDIA over time. In 

addition to changes to the standard coverage amount, 

Congress has made three changes to the coverage 

levels of particular types of accounts that increased 

their coverage above the then-standard coverage level 

(see below for more details).

30See 12 U.S. Code Sec. 1821(a)(1)(F). For a description of this change, see Van Roosebeke and Defina (2022), p. 9.

31 FDIRA provided that the SMDIA be adjusted every five years and rounded down to the nearest $10,000. Under that provision, in 2010 the inflation-adjusted 

coverage level would have been $109,716, and it would have rounded down to $100,000; in 2015, the inflation-adjusted coverage level would have been $119,259, 

and it would have rounded down to $110,000; in 2020, the inflation-adjusted coverage level would have been $130,548, and it would have rounded down to $130,000; 

as of February 2023, the inflation-adjusted coverage level was $152,271, but under the statute the coverage level would not have been due to reset until 2025. 

32 Information on events from the 1930s through 1980 is largely based on Bradley (2000).

33Pub. L. 73-66.

34Pub. L. 73-362.

35Pub. L. 74-305.

1930s32

Before the FDIC was made permanent in 1935, 

Congress originally set the coverage limit for deposit 

insurance at $2,500 effective January 1, 1934, in the 

Banking Act of 1933.33 The limited guarantee was 

important to ensure passage of the deposit insurance 

provisions of the law. The temporary plan was to last 

six months, but Congress extended it for an additional 

year and in June 1934 raised the coverage level to 

$5,000.34 The FDIC supported the increase, and when 

the Banking Act of 193535 made the FDIC permanent, 

Dollars

Sources: FDIC and Bureau of Labor Statistics (Haver Analytics).

Note: The deposit insurance limit was increased temporarily to $250,000 in 2008; the increase was made permanent in 2010. 

FIGURE 3.1

The Real Value of Deposit Insurance Has Fluctuated Over Time and Decreased 

in Recent Years

0

50,000

100,000

150,000

200,000

250,000

300,000

1934 1941 1948 1955 1962 1969 1976 1983 1990 1997 2004 2011 2018

Nominal Insurance Coverage

Insurance Coverage in 2008 Dollars
2023 Options for Deposit Insurance Reform | 15

the FDIC recommended retaining the $5,000 limit, 

which fully insured 98 percent of depositors.36

1950–1969

The insurance coverage limit was raised from $5,000 

to $10,000 in 1950 in the Federal Deposit Insurance Act 

(the FDI Act).37 This increase was viewed as keeping 

up with inflation and restoring coverage to the same 

percentage of depositors as had been the case in 1935. 

The increase was expected to benefit smaller banks 

and increase public confidence in the banking system. 

There was consideration of raising the coverage limit 

to $25,000 in 1963, an increase that the FDIC favored, 

but Congress did not act. The coverage level was 

increased to $15,000 in 1966; at the time, the thrift 

industry was having difficulty attracting depositors 

and maintaining mortgage financing.38 An increase 

in market interest rates had led to reductions in 

household savings in depository institutions, which 

was particularly problematic for thrifts. The increase 

in the limit also accounted for inflation and promoted 

confidence in the banking system. Just three years 

later, in 1969, Congress increased the coverage limit to 

$20,000. Again, the increase helped the thrift industry 

as it made savings accounts more attractive and so 

provided liquidity for housing.39

1974

The insurance coverage level was raised from 

$20,000 to $40,000 in 1974.40 Against the backdrop of 

significant inflation and tight Federal Reserve policy, 

rates on open-market instruments increased well 

above rates paid by insured depository institutions. 

Both the FDIC and Federal Home Loan Bank (FHLB) 

Board supported an increase in the coverage level. 

The FDIC considered the increase a way to help 

insured banks compete in an increasingly competitive 

market for savings, with businesses seeking higher 

returns outside insured banks. The House bill favored 

an increase to $50,000, while the Senate bill set the 

36The original permanent deposit insurance plan in the Banking Act of 1933, which was never implemented, created a co-insurance system, with full coverage 

to $10,000, 75 percent coverage on deposits from $10,000 to $50,000, and 50 percent coverage on deposits over $50,000. The FDIC believed that this plan would 

have increased the FDIC’s liability for a very small increase in the proportion of depositors covered.

37Pub. L. 81-797.

38Pub. L. 89-695.

39Bradley (2000).

40Pub. L. 93-495.

41Bradley (2000).

42Pub. L. 96-221.

43Bradley (2000).

44Pub. L. 110-343.

45Pub. L. 111-22.

level at $25,000, so the amount in the law was a 

compromise. The increase accounted for inflation and 

a concern that there might have been some decline in 

confidence in the U.S. banking system with the notable 

failure of Franklin National Bank in 1974.41

1980

The insurance coverage level was raised from 

$40,000 to $100,000 by the Depository Institutions 

Deregulation and Monetary Control Act of 1980.42

In a period of very high inflation and record high 

interest rates, the increase in the deposit insurance 

coverage level was both a response to inflation and an 

attempt to help depository institutions, particularly 

the increasingly troubled thrifts, in fighting deposit 

outflows. The Federal Reserve Board in testimony 

before Congress supported the increase. However, 

unlike the other changes to the SMDIA, the FDIC 

was concerned about the size of the increase and 

suggested that $60,000 would better serve as an 

adjustment for inflation, or that if the $100,000 level 

were chosen it should come with a change in the 

assessment rate to maintain the adequacy of the DIF.43

2008–2010

The SMDIA was increased temporarily from $100,000 

to $250,000 in October 2008 by the Emergency 

Economic Stabilization Act of 2008.44 The increase 

was to be in effect until December 31, 2009. In May 

2009, the temporary increase was extended from 

December 31, 2009, to December 31, 2013.45 But 

before that extension was passed, Congress had heard 

from interested parties about making the increase 

permanent. In both House and Senate hearings in 

February and March 2009, the industry (both the 

American Bankers Association and the Independent 

Community Bankers Association) advocated making 

the increase to $250,000 permanent, stating that the 

higher limit increased public confidence and helped 

community banks garner deposits. Both trade groups 
16 | 2023 Options for Deposit Insurance Reform

argued that adjusting for inflation, the $250,000 limit 

approximately restored the coverage that the $100,000 

limit provided in 1980. The National Credit Union 

Administration was also in favor of the permanent 

increase and said a reversion to the old limit would 

destabilize the industry and affect public confidence.46

The FDIC stated that any permanent increase in the 

coverage limit was a decision by Congress but that the 

FDIC should be allowed to account for any increase 

in setting insurance premiums.47 The Dodd-Frank 

Act made the increase to $250,000 permanent. That 

increase did not generate significant comment in 

testimony before Congress, and the provision was not 

included in the legislation until it reached the HouseSenate conference.

Differential Treatment of Accounts

Congress has several times set the deposit insurance 

coverage limit for certain types of accounts above the 

SMDIA. The first time was in 1974 when the statute 

set the SMDIA at $40,000 and increased coverage for 

public unit time and savings deposits held by state 

and political subdivisions to $100,000. This increase 

benefited banks by allowing them to better compete 

for public deposits and by freeing pledged assets 

associated with public deposit accounts. Through the 

enactment of the Financial Institutions Regulatory 

and Interest Rate Control Act of 1978,48 Congress 

authorized another differential treatment of deposits, 

increasing to $100,000 the coverage limit for time and 

savings deposits of individual retirement accounts 

(IRAs) and KEOGH funds (funds in retirement plans 

for self-employed individuals, small businesses, and 

partnerships). Differential coverage for retirement 

accounts was extended further under the Federal 

Deposit Insurance Reform Act of 2005, when coverage 

for those accounts was increased to $250,000, leaving 

the SMDIA at $100,000 though providing for future 

periodic inflation adjustments to the SMDIA. The FDIC 

46Typically, the changes in the SMDIA for FDIC-insured accounts are also adopted for credit unions.

47See U.S. House, Committee on Financial Services, Promoting Bank Liquidity and Lending Through Deposit Insurance, Hope for Homeowners, and Other 

Enhancements, 111th Cong. 1st sess. (Feb. 3, 2009), and U.S. Senate, Committee on Banking, Housing and Urban Affairs, Current Issues in Deposit Insurance, 

111th Cong., 1st sess. (Mar. 19, 2009).

48Pub. L. 95-630.

49See U.S. House, Subcommittee on Financial Institutions and Consumer Credit, Viewpoints of the FDIC and Select Industry Experts on Deposit Insurance Reform, 

107th Cong., 1st sess. (Oct. 17, 2001), 7.

50This section is largely based on the discussion of the TAG program in FDIC (2017), chapter 2. 

51 FDIC, “FDIC Announces Plan to Free Up Bank Liquidity,” press release, October 14, 2008, https://archive.fdic.gov/view/fdic/3381.

supported the increase to retirement account coverage 

and suggested that it be similar to the 2.5 times 

multiple adopted in 1978.49

The Transaction Account 

Guarantee Program50

The most recent instance of differential coverage 

occurred in response to the financial crisis that 

began in 2008 and the recession that followed. The 

FDIC created the TAG program under a systemic risk 

exception. The program was in effect from October 

2008 to year-end 2010. This program provided 

unlimited deposit insurance coverage to certain 

transaction accounts for institutions that chose to 

participate. Congress enacted a similar program, but 

for all institutions, under the Dodd-Frank Act in 2010. 

That program ended at year-end 2012. 

Background

As the financial crisis deepened in October 2008, the 

then-administration and bank regulators, as part 

of efforts to stabilize the financial system, used the 

systemic risk exception to put in place the Temporary 

Liquidity Guarantee Program (TLGP).51 The TLGP 

included both a debt guarantee program and the TAG 

program. The TAG program provided unlimited deposit 

insurance on certain types of transaction accounts; 

this was the first time the FDIC insured deposits above 

the statutory coverage limit.

Although at the time no signs existed of large-scale 

runs on insured depository institutions, anecdotal 

evidence suggested that deposits were leaving banks 

viewed as troubled, and that even healthy banks were 

having deposit outflows. The TAG program was meant 

to alleviate potential runs and liquidity pressures that 

might particularly affect smaller banks if concerned 

business and municipal depositors withdrew funds 

and transferred them to larger banks. 
2023 Options for Deposit Insurance Reform | 17

The TAG Program’s Coverage and Participation

The TAG program was voluntary but was first extended 

to all insured institutions for 30 days without cost, 

after which they could opt out.52 After the initial 

period, more than 7,200 banks and thrifts, or 87 

percent of FDIC-insured institutions, remained in the 

program. The TAG program was initially supposed 

to guarantee accounts until December 31, 2009, but 

given the financial crisis and recession, the FDIC was 

concerned that removing the guarantee too quickly 

might disrupt deposit funding and cause needless 

failures from sudden deposit withdrawals. Therefore, 

the FDIC extended the program twice, first through 

June 30, 2010, and then through December 31, 

2010, when the program ended. Institutions could 

opt out each time the program was extended.53 The 

percentage of insured institutions participating in the 

program declined with each extension and was down 

to 74 percent during the final program period. Over 

time, the average size of institutions remaining in the 

TAG program declined, with the greatest shift in size 

occurring at the first extension of the program 

(Table 3.2). 

52 73 Fed. Reg. 64179 (Oct. 29, 2008).

53 74 Fed. Reg. 45093 (Sept. 1, 2009); 75 Fed. Reg. 36506 (June 28, 2010).

54 73 Fed. Reg. 64179, 64182 (Oct. 29, 2008).

55 73 Fed. Reg. 72244 (Nov. 26, 2008).

56 75 Fed. Reg. 36506 (June 28, 2010).

Figure 3.2 shows the amount of deposits covered by 

the TAG program. TAG coverage peaked at more than 

$800 billion at year-end 2009. A different transaction 

account guarantee program was enacted under the 

Dodd-Frank Act and ran for an additional two years, 

through December 31, 2012 (see below).

The initial rulemaking for the TAG program defined 

an eligible account as “a transaction account with 

respect to which interest is neither accrued nor paid 

and on which the insured depository institution does 

not reserve the right to require advanced notice of 

an intended withdrawal.”54 After receiving public 

comments, the FDIC extended the TAG to other 

accounts deemed important to cover: Interest of 

Lawyers Trust Accounts (IOLTAs) and negotiable order 

of withdrawal (NOW) accounts, which paid a rate no 

higher than 0.5 percent.55 When the TAG program was 

extended for the second time, the FDIC lowered the 

allowable interest rate to 0.25 percent.56

TABLE 3.2

Over Time, an Increasing Proportion of Participating Banks Opted Out of the FDIC’s TAG Program,

and the Average Size of Those Banks Increased

Initial Opt-Out Second Opt-Out Third Opt-Out

Total Number of Institutions

Number of Institutions Remaining in TAG

Number of Institutions Not in TAG

Number of Institutions Newly Opting Out

Percentage of Institutions Not in TAG

Average Size of Institutions in TAG

Average Size of Institutions Not in TAG

8,305

7,200

1,105

1,105

13.3%

$1.9B

$292.5M

8,012

6,406

1,606

514

20.0%

$796.4M

$5.0B

7,830

5,801

2,029

441

25.9%

$535.0M

$5.0B

Source: FDIC.

Note: The TAG program is the Transaction Account Guarantee Program. Data are for insured institutions; data for first opt-out as of 12/31/08, for second opt-out 

as of 12/31/09, and for third opt-out as of 6/30/2010.
18 | 2023 Options for Deposit Insurance Reform

$ Billions

Source: FDIC.

Note: The TAG program is the FDIC's Transaction Account Guarantee Program. 

FIGURE 3.2

Amounts Guaranteed by the FDIC’s TAG Program Peaked at Over 

$800 Billion at Year-End 2009

0

100

200

300

400

500

600

700

800

900

Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

$ Billions

Source: FDIC.

Note: TAG is the Transaction Account Guarantee Program under Dodd-Frank. 

FIGURE 3.3

Amounts Covered by the Dodd-Frank Act TAG Peaked at Over 

$1.5 Trillion at Year-End 2012

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
2023 Options for Deposit Insurance Reform | 19

Fees and Costs

The TAG program imposed fees for opting in; it 

initially applied a 10 basis point annual surcharge on 

qualifying accounts over $250,000. When the FDIC first 

extended the program for an additional six months, 

the surcharge was changed to a risk-based rate. 

Depending on an institution’s deposit assessment 

category, it was charged 15, 20, or 25 basis points. At 

this extension, participating institutions could opt 

out, effective January 1, 2010. More than 6,400, or 93 

percent of participating institutions at year-end 2009, 

continued in the TAG through June 30, 2010. The 

program collected approximately $1.2 billion in fees, 

and as of year-end 2022 TAG losses were estimated to 

be approximately $1.46 billion.

The Dodd-Frank Transaction Account 

Guarantee Program

The Dodd-Frank Act (Section 343) created a statutory 

version of TAG, which was in effect from December 

31, 2010, when the FDIC’s TAG program expired, 

to December 31, 2012. Unlike the FDIC’s program, 

institutions had no ability to opt out, and initially 

only noninterest-bearing transaction accounts were 

provided with unlimited deposit insurance coverage. 

IOLTAs (but not NOW accounts) were added by using 

a provision in a law enacted on December 29, 2010. 

Also, unlike the FDIC’s TAG program, there was no 

separate fee, but the FDIC stated it would consider 

the cost for the additional insurance coverage in 

determining deposit insurance assessments under 

its risk-based assessment system.57 Banking industry 

groups advocated for the TAG program to be extended 

yet again, seeking to prevent accounts from moving 

to large banks or money market mutual funds. But an 

extension did not have sufficient support in Congress, 

and the program expired at year-end 2012. The 

amount insured peaked at the program’s end in 2012 

at more than $1.5 trillion (Figure 3.3).

The Dodd-Frank Act provided that going forward, a 

debt guarantee program like the one created by the 

TLGP in 2008 should be permitted only following the 

determination of a “liquidity event” under the act 

and with congressional approval. But Section 1105 of 

57 75 Fed. Reg. 69577 (Nov. 15, 2010).

58Pub. L. 116-136.

59Congressional Research Service (2020). 

60 Insured depository institutions report transaction accounts on the Call Report; transaction accounts are generally defined as a deposit or account from which 

the depositor is permitted to make transfers or withdrawals, either immediately on demand or with at least seven days’ notice. Savings accounts are a subset of 

nontransaction accounts, which also include money market deposit accounts and time deposits (certificates of deposit).

the statute specifically stated that a debt guarantee 

program could not extend to a guarantee of deposits. 

However, in 2020, as part of the pandemic-related 

provisions related to economic stabilization, Section 

4008 of the CARES Act58 gave the FDIC authority 

to back up deposits to any limit and preemptively 

granted congressional approval for such a program so 

long as the FDIC guarantee terminated by December 

31, 2020.59 The FDIC did not put such a guarantee in 

place. However, the statute changed the Dodd-Frank 

Act provision stating that a debt guarantee program 

could not extend to a guarantee of deposits, and the 

law now allows such a program to include a guarantee 

of deposits.

Composition of Deposits 

Deposits serve two primary functions. First, 

deposits serve a critical role in the payment system. 

Households and businesses use deposits to transfer 

monetary value to settle financial transactions. 

Second, deposits are a store of value used by 

households and businesses for saving and investment. 

Although deposit accounts are not distinguished 

directly along these dimensions, transaction accounts 

are generally associated with the payment system 

function, and savings and time deposits are generally 

associated with the saving and investment functions. 

Figure 3.4 plots the proportion of deposits by account 

type from 1984 to 2022. In 1984, deposits primarily 

served an investment function for depositors, as 

about 72 percent of domestic deposits were held as 

time deposits (54 percent) or as savings accounts (18 

percent). Meanwhile, transaction accounts comprised 

about 22 percent of deposits.60 By 2000 and into the 

financial crisis in 2008, savings accounts more than 

doubled their share of domestic deposits, largely at 

the expense of time deposits and, to a lesser degree, 

transaction accounts. Following the financial crisis, 

time deposits constituted a diminishing share of 

domestic deposits in the system, comprising just 15 

percent in 2019, while transaction accounts continued 

to account for less than 18 percent until the COVID-19 
20 | 2023 Options for Deposit Insurance Reform

pandemic. Savings accounts have accounted for most 

of all domestic deposits every year since 2003, except 

2008 when they accounted for 49 percent of domestic 

deposits. 

Despite their distinctions on regulatory filings, 

regulatory changes and the economic environment 

have blurred the distinctions between deposit 

accounts over time. Historically, regulatory 

restrictions—such as interest rate caps and 

withdrawal limits—delineated between the payment 

and investment functions of deposits. However, 

amendments to Regulation D and the repeal of 

Regulation Q have removed some of the historical 

differences.61 The repeal of Regulation Q, which limited 

the rates that banks could pay on demand deposits, 

evolved over decades. From 1978 to 1986, laws and 

regulation phased out many of the rate restrictions 

on deposits that had been in place since the Banking 

Acts of 1933 and 1935.62 The remaining limits on rates 

paid on demand deposits were subsequently repealed 

61Cook (1978).

62Gilbert (1986).

63See 76 Fed. Reg. 42015 (July 18, 2011).

in 2011.63 As a result, some banks today offer interestbearing checking accounts, with interest rates that 

rival the industry’s average savings account rates. 

Under the Federal Reserve’s Regulation D, depositors 

with savings accounts were limited in the ways 

they could access savings account deposits. Under 

Regulation D, there was a limit of six transactions per 

month on certain types of withdrawals from savings 

accounts, such as automatic transfers including 

overdraft payments. One important distinction 

between account types is that depository institutions 

must hold reserves against certain accounts

(a transaction account) but not against others 

(for example, a money market savings accounts). 

However, beginning in 1994, banks began 

implementing retail sweep programs in which 

customer reservable transaction accounts were 

swept into accounts that did not require reserves. By 

reducing the bank’s reserve requirement, the bank 

was able to invest those funds into interest-earning 

Percent

Source: FDIC.

FIGURE 3.4

The Share of Domestic Deposits Held in Savings Accounts Increased Prior to 2020 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Savings Time Deposits <= Insurance Limit Time Deposits > Insurance Limit

Transaction Accounts All Other Domestic Deposits
2023 Options for Deposit Insurance Reform | 21

assets.64 Although sweeps restructure transaction 

accounts into two legally separate accounts 

(a demand deposit account and a savings account), 

account holder liquidity is unaffected. Debits and 

credits are posted directly to the depositor’s account. 

If the depositor requires more than five withdrawals to 

meet liquidity needs, the entire balance of the savings 

account is swept back into checking to comply with 

Regulation D.65 Thus, many savings account deposits 

operate with the liquidity of a transaction account.

Further, as a result of the COVID-19 pandemic, the 

six-transaction rule in Regulation D was temporarily 

suspended (and it is still suspended as of April 2023),66

allowing banks to raise that limit on their savings 

accounts (if the banks so choose). Consequently, some 

banks lifted the limit entirely, allowing some savings 

accounts to serve in practice as checking accounts. In 

some cases, for example, customers can open both 

checking and savings accounts at the same bank and 

set the checking account’s overdraft transactions 

to withdraw money from the savings account. This 

allows customers to have a checking account through 

which they can obtain payment services but keep all 

their funds in the savings account earning the savings 

account rate. 

In addition to changes in regulation, low interest 

rates following the 2008 financial crisis may have 

contributed to changes in the compositional function 

of deposits. Absent the ability to earn yield on deposit 

investments, the deposit base may have shifted to 

meet primarily payment services needs. More recently, 

increased interest rates may influence depositors to 

seek higher yield on transaction or savings accounts in 

response to competition, as is now permitted.

Though they may have led to benefits like increased 

modernization and innovation, regulatory changes 

like those mentioned above can complicate deposit 

insurance reform. For example, they make it more 

difficult to tailor the deposit insurance limit based on 

depositor needs by targeting specific account types 

(e.g., as in the original TAG program, which generally 

covered noninterest-bearing transaction accounts). 

If more distinctions between accounts are needed, 

64Edwards (1997).

65Gonzalez (2008).

66See 85 Fed. Reg. 23445 (Apr. 24, 2020). 

deposit insurance reform may require additional 

restrictions for different deposit account types. 

The distinctions between savings accounts and 

transaction accounts, combined with the comparative 

amount of time deposits, suggest that deposits 

primarily functioned as investments into the 1990s. 

As of 2023, the ability to pay interest on transaction 

accounts and the ability to withdraw on savings 

accounts obscure the extent to which depositors use 

deposits for payments, investment, or both. 

Finally, although time deposits are more commonly 

viewed as investment vehicles, withdrawal penalties 

are often inconsequential, especially to the extent 

that depositors have solvency concerns about their 

bank. If time deposits can be withdrawn with little or 

no penalty, they may also serve multiple functions. If 

deposit insurance reform evaluates the protection of 

payment accounts differently from that of investment 

accounts, clear delineation between account types is 

warranted (see Targeted Coverage in Section 6).

History of Uninsured 

Depositor Losses

As of December 31, 2022, estimated uninsured 

deposits held by insured depository institutions 

totaled about $7.7 trillion, which is 43 percent of 

domestic deposits. Historically, losses to uninsured 

depositors have been small. In many bank failures, 

uninsured depositors do not incur a loss, and for the 

failures in which uninsured depositors incur a loss, the 

dollar amount of the loss was small in aggregate. The 

FDIC has many options to resolve failed institutions. 

Most commonly, the FDIC identifies an acquiring 

institution to assume some of the failed institution’s 

assets and liabilities. Often, to maintain franchise 

value, the acquiring institution assumes all of the 

failed bank’s deposits regardless of insurance status 

and uninsured depositors incur no loss. When the 

acquiring institution does not assume the uninsured 

deposits, uninsured depositors receive a claim on the 

receivership and are paid dividends on that claim from 

the proceeds of selling any assets that the acquiring 

institution does not assume.
22 | 2023 Options for Deposit Insurance Reform

Table 3.3 highlights historical losses to uninsured 

depositors over the past three decades divided into 

two periods. The first period, 1992–2007, covers the 

post-FDICIA period until just before the 2008 global 

financial crisis. The second period, 2008–2022, covers 

the period starting with the 2008 global financial 

crisis.67 From 1992 to 2007, when banks failed, 

uninsured depositors often took losses (43 percent 

of the time).68 When uninsured depositors took a 

loss, the losses were 24 percent from 1992 to 2007. 

In contrast, from 2008 to 2022, uninsured depositors 

took a loss in only 6 percent of failures and, when 

they took a loss, uninsured depositor losses were 43 

percent. The differences across periods may reflect 

differences in deposit insurance coverage: with higher 

insurance coverage, paying out insured depositors 

became a more costly resolution option, and failures 

with uninsured losses were more likely to represent 

extreme cases such as fraud. Taking into consideration 

the failures in which uninsured depositors incurred 

no loss (the unconditional loss rate), uninsured 

depositors lost 10 percent in the first period and 3 

percent in the second period, or about 6 percent 

overall.69

It is important to note that uninsured depositors at 

Indymac, with $28 billion in assets at failure, incurred 

losses on their uninsured deposits. 

67As discussed earlier in this section, in October 2008, the deposit insurance limit increased to $250,000. Thirteen banks failed in 2008 before the deposit 

insurance limit increased but were retroactively covered up to the $250,000 limit when the limit was raised. The remainder of the 536 banks that failed from 2008 

to 2022 did so when the $250,000 deposit insurance limit was in effect.

68 Failed banks exclude failures resolved through assistance transactions in which institutions remain open.

69 Loss rates are averages across failed institutions and are unweighted by bank size or deposit exposure.

What’s Different Today?

Changes since the 2008 financial crisis have meant 

that banks, bank customers, and banking regulators 

face a different financial environment than in the past. 

Some differences are relevant for understanding the 

full implications of deposit insurance design or reform.

Social Media and Financial Technology

Information sharing today is much easier, faster, and 

scalable than in the past. At the click of a button, 

information can be shared with thousands or millions 

of people. Information that garners attention spreads 

exponentially, as interested individuals share it further 

and automated algorithms promote it to viewers. 

In parallel, technological advances in the financial 

sector allow for large financial transactions to occur 

with unprecedented ease. Depositors can easily set 

in motion the transfer of millions of dollars, open and 

close accounts, link bank accounts with other financial 

accounts, and move funds across asset classes. (In 

addition, see the discussion below on the upcoming 

FedNow real-time payment system.)

These changes allow depositors to monitor their banks 

more easily, potentially increasing the effectiveness 

of depositor discipline. However, they also exacerbate 

the potential for panic-driven runs. 

TABLE 3.3

Uninsured Depositor Losses and Loss Rates in Failed Banks Have Historically Been Low

Total Failures

Number of 

Failures With 

Losses to 

Uninsured

Percent of 

Failures With 

Losses to 

Uninsured

Uninsured 

Losses 

($ Millions)

Conditional

Uninsured

Loss Rate

Unconditional

Uninsured

Loss Rate

1992–2007

2008–2022

All

302

536

838

131

34

165

43%

6%

20%

148

137

285

24%

43%

28%

10%

3%

6%

Source: FDIC. 

Note: Failed banks exclude failures resolved through assistance transactions in which institutions remain open. Information about failed banks and failed bank 

losses are from the FDIC Bank Failures and Assistance Data at https://banks.data.fdic.gov/bankfind-suite/failures and from FDIC information on payments 

made to claimants in bank failures. Information about the dividends paid to claimants, including uninsured depositors, can be found in the Dividend 

Information section of the descriptions on the FDIC’s Failed Bank List at https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/.
2023 Options for Deposit Insurance Reform | 23

Institutional Changes

In response to the 2008 financial crisis, the COVID-19 

pandemic, and recent bank failures, the Federal 

Reserve introduced several lending facilities to provide 

liquidity to financial institutions and improve financial 

stability. The availability of loans to meet short-term 

liquidity needs increases confidence broadly, allowing 

banks to continue offering credit and alleviating 

depositors concern for the safety of their deposits.70

As part of its response to the 2008 financial crisis, the 

Federal Reserve also offered interest on reserves that 

it holds for banks.71 The interest provides some level 

of support for financial institutions and allows the 

Federal Reserve to better control short-term interest 

rates. Offering interest on reserves increases bank 

demand (and competition) for deposits and may result 

in banks offering higher deposit rates to customers. 

Relevant Upcoming Changes to the 

Financial System

Upcoming enhancements to the U.S. payment 

system (FedNow, launching in July 2023) will 

modernize transactions by offering instant payments.72

Customers will be able to send and receive money 

in seconds, 24 hours a day, 7 days a week, 365 

days a year, and funds will settle between financial 

institutions in near real-time. 

On some dimensions, the upcoming enhancements to 

payment systems are likely to have a positive effect 

70 Federal Reserve Board, “Federal Reserve Board Announces It will Make Available Additional Funding to Eligible Depositor Institutions to Help Assure Banks 

Have the Ability to Meet the Needs of All of Their Depositors,” press release, March 12, 2023, https://www.federalreserve.gov/newsevents/pressreleases/

monetary20230312a.htm.

71Originally authorized to begin in 2011 under a 2006 statute, the Emergency Economic Stabilization Act of 2008 authorized the Federal Reserve to pay interest on 

required and excess reserves held by depository institutions.

72 For more information on FedNow, see https://www.frbservices.org/financial-services/fednow.

73CFPB, “CFPB Kicks Off Personal Financial Data Rights Rulemaking,” press release, October 27, 2022, https://www.consumerfinance.gov/about-us/newsroom/

cfpb-kicks-off-personal-financial-data-rights-rulemaking/.

on financial stability. Banks that can receive instant 

payments may be better able to meet short-term 

liquidity needs. But processing transactions outside 

of normal business hours challenges the ability of 

supervisors to intervene promptly at the start of a 

run, possibly diminishing financial stability. Instant 

payments increase the speed at which changes to 

bank conditions and bank runs can occur, and the full 

implications of instant payments are yet to be seen. 

Movements toward open banking may also facilitate 

the likelihood that depositors withdraw funds in 

response to concerns about bank solvency. For 

example, as the Consumer Financial Protection 

Bureau seeks to implement Section 1033 of the 

Dodd-Frank Act, consumers will have greater access 

to, and control over, their financial data.73 Rules that 

increase customer control of their data are expected to 

increase competition by enabling customers to switch 

providers and transfer their account histories without 

the costs of having to start over. Open banking may 

improve customer welfare by reducing the monopoly 

power of providers who have access to consumer 

data. However, by reducing the barriers to switching 

providers, depositors may also be more inclined to 

withdraw funds in response to concerns about bank 

solvency. Thus, open banking also has the potential to 

increase the likelihood of bank runs.
PAGE INTENTIONALLY LEFT BLANK
2023 Options for Deposit Insurance Reform | 25

Section 4: Objectives and Possible 

Consequences of Deposit Insurance

74 IADI, “Deposit Insurance Systems Worldwide,” 2023, https://www.iadi.org/en/about-iadi/deposit-insurance-systems/dis-worldwide/.

75The reason banks are structured in this way has been the subject of significant academic debate, but a typical explanation is that by pooling the idiosyncratic 

(or, largely uncorrelated) liquidity needs of many depositors, a bank can provide the needed liquidity for all its depositors without holding as many liquid assets 

as the depositors would need to hold if they were to provide for their own liquidity individually. By reducing the amount of funding that needs to be held in a 

liquid form, the bank frees funds to be invested in productive but less liquid loans and projects. These illiquid projects, in turn, provide for economic growth 

and opportunity. Without banks, many of society’s resources would be tied up to provide liquidity, and economic well-being would be lower. See Diamond and 

Dybvig (1983) for more on this explanation. Alternative explanations are offered by, among others, Fama (1985), Calomiris and Kahn (1991), Diamond and Rajan 

(2011), and Kashyap, Rajan, and Stein (2002).

76 For the purposes of this argument, we abstract from the possibility of unexpected asset losses, bank mismanagement, or other reasons besides depositor runs 

that might cause banks to become insolvent or fail.

77 For more on informationally driven or fundamentals-based bank runs, see, for example, Gorton (1988), Jacklin and Bhattacharya (1988), Calomiris and Gorton 

(1991), and Goldstein and Pauzner (2005).

78See Diamond and Dybvig (1983) for a theoretical explanation of this behavior.

79This “first come, first served” type of behavior is sometimes referred to as a “sequential service constraint.”

80See Murton (1989) for a more detailed presentation of this argument.

Since the creation of the FDIC in 1933, more than 140 

national jurisdictions have adopted deposit insurance 

systems.74 Financial stability and depositor protection 

are the two leading public policy objectives of deposit 

insurance. However, deposit insurance can also 

change bank behaviors and lead to market distortions. 

This section reviews the objectives of deposit 

insurance and its consequences in the context of U.S. 

institutions and the regulatory framework. It highlights 

the important tools, discussed in Section 5, that may 

be used along with changes to deposit insurance 

coverage to meet policy objectives while minimizing 

undesired consequences.

Objectives

In addition to financial stability and depositor 

protection, deposit insurance objectives may 

include providing consistency and transparency and 

minimizing disruptions from bank resolution. This 

subsection discusses each objective, which informs 

the comparison of reform options discussed in 

Section 6.

Financial Stability

Improving financial stability by preventing bank 

runs is a primary objective of deposit insurance. 

Fundamentally, banks are susceptible to runs because 

they raise funding by issuing liquid deposits, usually 

available immediately upon demand, to invest in 

illiquid (or less-liquid) long-term assets such as 

loans.75 Long-term assets generally pay banks a higher 

interest rate than deposits cost the bank, so banks will 

generally be solvent and profitable if they can hold 

the loans to maturity.76 If, however, many depositors 

simultaneously demand the return of their deposits 

from a bank and it exhausts its supply of liquid 

assets (the supply of which is typically rather limited 

compared with the volume of deposit liabilities), 

the bank will be forced to sell its illiquid and longterm assets before they mature to meet depositor 

withdrawals. In selling its long-term assets, especially 

in a short timeframe, the bank must accept prices 

for the assets that may be lower than their intrinsic 

value—that is, the bank takes a loss on the sale. If the 

bank sells enough assets at a loss, losses exceed the 

bank’s cushion of equity capital and the bank becomes 

insolvent and unable to meet its financial obligations 

to remaining depositors. Depositors might withdraw 

their deposits collectively (i.e., run on the bank) 

because they fear that the bank might be insolvent,77

but they might also run even on a bank they know is 

solvent simply because they believe other depositors 

will do the same.78 Because banks serve depositors 

in the order that they arrive,79 the first depositor to 

run on a solvent bank can withdraw their full deposit 

amount. As the bank sells more assets at a loss and 

becomes insolvent, depositors who are later to run are 

unable to obtain their full deposit amount. Thus, once 

a run starts, all depositors want to be as close to the 

front of the line as possible—the collective expectation 

of a run becomes self-fulfilling, and the bank fails.80

Bank failures, especially failures of otherwise solvent 

banks caused by runs, impose significant costs on 

the financial system and the economy. First and most 
26 | 2023 Options for Deposit Insurance Reform

simply, bank runs, and the associated panic, can be 

contagious among depositors of different banks for 

purely behavioral and psychological reasons: a run 

on one bank can spread to others. Second, one bank’s 

funding stress can be transmitted to other banks 

through various asset prices. Distressed banks might 

raise their deposit rates to attract or retain funding, 

increasing the equilibrium rate in the market that all 

other banks must pay or attracting funds from other 

banks.81 Alternatively, banks facing deposit outflows 

may engage in asset fire sales to fund withdrawals, 

depressing market prices for those assets and 

impairing the liquidity and solvency of other financial 

institutions holding similar assets.82 Bank runs and 

bank failures also have real economic costs, especially 

arising from a loss of credit intermediation by the 

banks. Banks form relationships with, and learn 

about, borrowers in their communities, and they 

fund productive projects by these borrowers using 

money obtained from deposits. When deposits flee or 

banks fail, this credit intermediation is disrupted and 

productive projects might go unfunded, depressing 

economic activity.83 If other banks are concerned 

they might face a run, they may also forgo lending to 

profitable projects to retain liquidity for precautionary 

reasons, further limiting credit intermediation.

Beyond general effects on the financial system or 

economy, bank failures can be painful for individual 

uninsured depositors or other creditors of failed 

banks, and for entities exposed indirectly to the 

bank. Counterparties to banks include individuals 

and households that invest their savings or maintain 

liquid funds to pay their mortgages or bills. Without 

access to their deposits, uninsured depositors may 

lack the money to make payments and access to the 

payment system to transmit their money to those with 

whom they do business. Given the $250,000 limit, the 

proportion of households unable to pay bills due to 

losses on uninsured deposits is likely to be exceptionally 

small and includes only the wealthiest households. 

81 For example, see Egan, Hortaçsu, and Matvos (2017).

82There exists a rich literature on asset fire sales, including Diamond and Rajan (2011), Shleifer and Vishny (2011), Tirole (2011), Brunnermeier (2009), and Allen 

and Gale (1994).

83 For example, see Bernanke (1983).

84See, for example, “Remarks by President Biden on Maintaining a Resilient Banking System and Protecting Our Historic Economic Recovery,” March 13, 2023, 

https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/03/13/remarks-by-president-biden-on-maintaining-a-resilient-banking-system-andprotecting-our-historic-economic-recovery/.

85Martin, Puri, and Ufier (Forthcoming) and Davenport and McDill (2006) provide evidence from the United States that FDIC insurance stabilizes insured deposits 

at the level of individual deposit accounts, especially in the face of financial market stress or when depositors have reason to question the solvency of their bank. 

Brown, Guin, and Morkoetter (2020), Iyer, Jensen, Johanessen, and Sheridan (2019), Iyer, Puri, and Ryan (2016), and Iyer and Puri (2012) provide complementary 

evidence from foreign countries, specifically Switzerland, Denmark, and India.

As the recent bank failures showed, losses to 

uninsured deposits held in business payment accounts 

present an important concern. Payment accounts are 

critical to businesses’ ability to pay expenses and their 

employees. Because many firms’ cash flow needs are 

high, these payment accounts by necessity are often 

large and uninsured at the current deposit insurance 

limit. Thus, a disorderly bank failure can result in 

missed payments on trade credit and lost labor 

income for employees who have no direct exposure to 

the failed bank or ability to protect themselves from 

the risk of the bank.84 Losses on uninsured business 

accounts from bank runs can contribute to lost wages, 

business closures, and job losses.

Deposit insurance removes depositor incentives to run 

on their bank, thereby preventing runs and avoiding 

the numerous costs associated with them. Depositors 

know that their insured funds are safe because the 

FDIC and the DIF, especially in combination with the 

full faith and credit guarantee of the U.S. government, 

are credible backstops for deposits. Depositors can be 

confident that if their bank fails, they will have access 

to their insured deposits without interruption. As a 

result, insured depositors have little incentive to run 

on their bank, even if they expect other depositors to 

do so or if they believe their bank to be insolvent.

Empirically, deposit insurance is highly effective 

at preventing runs. At a high level, the rarity of 

bank runs in the United States, especially runs by 

insured depositors, since the creation of the FDIC is 

clear evidence of the stabilizing benefits of deposit 

insurance. At the level of individual depositor 

behavior, analysis on data from both the United 

States and abroad provides consistent evidence on 

the effectiveness of deposit insurance in stabilizing 

insured deposit funding.85 Banks facing funding stress 

originating from uninsured depositors and other 

creditors may be able to address this funding stress by 

increasing deposit interest rates to attract additional 
2023 Options for Deposit Insurance Reform | 27

insured funding.86 Generally, a higher share of insured 

deposits in bank funding structures makes banks 

individually—and the banking system as a whole—less 

susceptible to runs.87

Depositor Protection

Protecting small depositors, who constitute most 

deposit accounts, has been an objective of the deposit 

insurance system since its founding. In hearings 

preceding the creation of the FDIC, Representative 

Steagall argued, “The hard-earned savings of the 

majority of our people who are only able to deposit 

in one bank must be protected.”88 From the market 

crash in the fall of 1929 to the end of 1933, about 9,000 

banks suspended operation, resulting in losses to 

depositors of about $1.3 billion.89 To help reestablish 

consumer confidence in the banking system, the 

FDIC was created, and the initial deposit insurance 

limit was $2,500 per depositor. Increases in the 

deposit insurance limit have been justified based 

on “protect[ing] the small depositor.”90 There are 

several reasons to provide specific protection to small 

depositors. 

First, monitoring a bank for safety and soundness 

likely requires fixed costs, making it both impractical 

and inefficient for small depositors to conduct 

due diligence. Second, monitoring for safety and 

soundness requires financial, regulatory, and legal 

expertise that is time consuming and cannot be 

expected of small depositors. Deposit insurance 

provides small depositors a mechanism to protect 

their hard-earned savings, without placing these 

undue costs and burdens on them. 

Third, information is an important component to 

effective monitoring. Depositors, large and small, do 

not have access to supervisory information. Large 

depositors, however, can more easily justify various 

costs associated with collecting and analyzing 

financial market reports from private vendors that 

may be used for monitoring. Finally, information on 

the safety and soundness of banks is a public good: 

86 For a theoretical discussion of this possibility, see Egan, Hortaçsu, and Matvos (2017). For empirical evidence, see Martin, Puri, and Ufier (Forthcoming).

87 For theoretical support, see Egan, Hortaçsu, and Matvos (2017).

88Hearings Before the Subcommittee of the Committee on Banking and Currency, U.S. House of Representatives, March and April 1932, p. 268, https://babel.

hathitrust.org/cgi/pt?id=umn.31951d03595099g&view=1up&seq=272&q1=deposit.

89 FDIC (1984), p. 3.

90U.S. Senate Committee on Banking and Currency, Amendments to the Federal Deposit Insurance Act: Hearings on S. 80, S. 2094, S. 2307, and S. 2822 before the 

Subcommittee, 81st Cong., 2nd sess. (1950).

91Blinder and Wescott (2001).

when monitoring by investors results in changes 

in bank risk-taking, all creditors benefit. Based on 

these factors and given the differences in expertise, 

size, and availability of proprietary information, 

small depositors are poorly situated to contribute 

to monitoring their bank for safety and soundness 

relative to supervisors or larger, institutional 

depositors.91

For small depositors, a low-cost, viable alternative 

to monitoring is to withdraw their funds from the 

banking system, which may then affect the health of 

the economy more broadly. Thus, in providing small 

depositors a safe vehicle for saving and transactions, 

deposit insurance promotes confidence in the banking 

sector and supports the circulation of currency.

Although larger, institutional depositors are better 

equipped than smaller depositors to perform due 

diligence, they may also use their resources to expand 

their deposit insurance coverage beyond the $250,000 

limit by using deposit services such as brokered 

deposits, reciprocal deposits, and sweep accounts. 

Use of these products shows that there is a demand 

for deposit insurance protection at higher levels. 

Further, the presence of brokered deposits, sweeps, 

and reciprocal deposits demonstrates that the current 

system already provides deposit insurance coverage 

for large depositors. However, access to insured 

deposit coverage above the deposit insurance limit 

under the current system differs across depositors 

based on depositor awareness and legal, financial, and 

regulatory expertise.

To compare the options, this report focuses 

primarily on financial stability and consistency and 

transparency. The report does not separately discuss 

the role of the options in meeting the depositor 

protection objectives; however, depositor protection 

issues, such as prompt access to insured funds after 

a failure, are mentioned in relevant areas.
28 | 2023 Options for Deposit Insurance Reform

The arguments in favor of protecting small depositors 

may also extend to the protection of business payment 

accounts. Much like small depositors, employees 

and trade creditors of a business that uses its deposit 

accounts for payment services are poorly positioned 

to understand their exposure to failure of that firm’s 

bank. Surveys suggest that even small, relatively 

unexpected expenses as little as $400 could cause 

financial hardship for many Americans.92 Protecting 

workers from a sudden wage or job loss resulting from 

bank runs by protecting the accounts used to pay 

their wages may therefore yield significant benefits to 

consumers. 

Minimizing Disruptions From Bank Resolution

Deposit insurance coverage has direct implications 

for the costs associated with bank resolutions. Three 

key objectives of bank resolution include paying 

insured depositors promptly, retaining franchise 

value, and minimizing costs to the insurance fund and 

banking system. 

Resolving an institution does not happen without 

considerable planning and preparation before a 

potential failure. Bank runs can shorten, or eliminate, 

the time available to the FDIC to implement an orderly 

resolution and increase the costs of the resolution. 

Severe liquidity challenges that induce a bank failure 

are likely to progress quickly and with little warning. 

To stop a bank run, and to prevent it from potentially 

spreading to other institutions, the FDIC must act 

swiftly to close the bank. Doing so hinders the FDIC 

from executing its preferred processes to prepare 

for failure.93

When supervisory authorities conclude that an 

insured depository institution is operating in an 

unsafe condition, the FDIC undertakes preparations 

to resolve the institution should failure occur.94 These 

preparations relate directly to the key objectives 

stated above. 

The FDIC aims for a seamless experience for depositors 

and creditors. In the ideal scenario, depositors 

92 Federal Reserve Board of Governors, “Report on the Economic Well-Being of U.S. Households in 2019–May 2020,” https://www.federalreserve.gov/

publications/2020-economic-well-being-of-us-households-in-2019-dealing-with-unexpected-expenses.htm.

93Hoggarth, Reidhill, and Sinclair (2004). 

94See FDIC (2017), chapter 6, “Bank Resolutions and Receiverships,” and FDIC (1998), Vol. 1, chapter 2, “Overview of the Resolution Process.”

95Some regulations are currently applied to large banks through Part 360.9 of the FDIC’s regulations, titled “Large-Bank Deposit Insurance Determination 

Modernization,” and Part 370 of those regulations, titled “Recordkeeping for Timely Deposit Insurance Determination.”

96Garcia (2000).

maintain almost continuous access to their funds, 

borrowers experience a quick transfer to another 

bank without intermediate servicing issues, and 

neither group particularly notices that ownership 

of the institution has changed. 

Providing insured depositors access to their funds may 

require the completion of an insurance determination, 

which involves the FDIC obtaining and analyzing 

bank customer and account data. Full execution 

of an insurance determination entails substantial 

manual effort to determine account ownership and 

associated insurance status. For some account types, 

full execution of an insurance determination requires 

manual review of documentation that the bank does 

not maintain. This can delay the determination of 

an account’s insurance status. Simplification of the 

system or regulation95 could reduce the costs of the 

deposit insurance determination and thus lessen 

administrative costs of the receivership. 

An abbreviated lead-up to failure also affects the 

ability of the FDIC to maximize the franchise value of 

the failed institution. The FDIC is less able to market 

the institution to potential acquirers, and interested 

parties are less able to conduct due diligence. This 

leads to increased uncertainty that may reduce 

competition in bidding for the failed bank’s assets and 

may result in lower prices or increases in the cost of 

the terms offered by the FDIC to potential acquirers, 

such as more generous cost-sharing agreements. 

These dynamics increase the cost to the DIF and, 

ultimately, the banking system that must pay higher 

assessments to recapitalize the Fund.

Consistency and Transparency

One objective of deposit insurance is to make 

protections explicit and to provide clear expectations 

to markets in advance.96 Differences in market 

perceptions regarding the potential for uninsured 

depositor losses can distort incentives and affect 

competition. Market perceptions may be informed 

both by bank regulatory and resolution regimes that 

differ across banks and expectations on the future 
2023 Options for Deposit Insurance Reform | 29

treatment of uninsured depositors in resolution given 

previous interventions. A well-designed deposit 

insurance system that credibly limits the need for 

government interventions during a crisis provides 

transparent protection and enables informed decisionmaking on how to allocate costs accordingly. 

Explicit deposit insurance coverage that can be 

credibly executed in a resolution may increase 

transparency and allow market participants to 

operate under fewer assumptions. In addition, 

even when they expand protection, explicit policies 

may cause a reduction in risk-taking if they correct 

distortions based on subjective beliefs about the 

potential for uninsured depositor losses.97

Because of the constant evolution of financial 

institutions and risk exposures, explicit policies 

are unlikely to materialize as described for all 

possible scenarios. However, lawmakers and 

regulators can strengthen the financial system 

and prepare for potential shocks through explicit, 

well-designed policies.

Possible Consequences 

Despite its potential financial and economic 

benefits, deposit insurance may create distortions 

that undermine or reduce its efficacy in meeting its 

objectives. Deposit insurance also can affect bank 

risk-taking and bank funding choices. This subsection 

examines these unintended consequences of deposit 

insurance.

Moral Hazard, Market Discipline, and Depositor 

Discipline

Moral hazard is the incentive to take on greater risk 

as a result of being protected from the consequences 

of risk-taking. It is a common concern in insurance 

97Gropp and Vesala (2004), Cutura (2021).

98Park and Peristiani (1998), Jordan (2000), Martinez Peria and Schmukler (2001), Davenport and McDill (2006), Maechler and McDill (2006), Bennett, Hwa, and 

Kwast (2015), Berger and Turk-Ariss (2015), Iyer, Jensen, Johannesen, and Sheridan (2019), and Martin, Puri, and Ufier (Forthcoming). In addition to interest rates, 

banks may compete on other dimensions (such as payment services) to attract deposits.

99Empirically, there is both evidence that deposit insurance can increase bank risk-taking and evidence to the contrary. The relationship between deposit 

insurance and moral hazard is dependent on institutional factors that differ across time and countries. This dependence can sometimes lead to conflicting 

conclusions. Thus, drawing implications from other countries or under different sets of laws and regulations should be done with care. Examples of studies 

that find that deposit insurance increases risk-taking include Grossman (1992), Wheelock and Wilson (1995), Hooks and Robinson (2002), Demirgüç-Kunt and 

Detragiache (2002), Ioannidou and Penas (2010), Lambert, Noth, and Schüwer (2017), and Calomiris and Jaremski (2019). Studies that do not find evidence that 

deposit insurance increases risk-taking include Karels and McClatchey (1999), Gueyie and Lai (2003), and Gropp and Vesala (2004). Some studies find conflicting 

effects of deposit insurance depending on other factors like the economic cycle or the institutional environment; these include Hovakimian, Kane, and Laeven 

(2003) and Anginer, Demirgüç-Kunt, and Zhu (2014). Some studies such as Karas, Pyle, and Schoors (2013) find evidence of depositor discipline but do not 

directly establish a resulting effect on bank risk-taking ; see Bliss and Flannery (2002) for a discussion of this phenomenon in the market discipline literature 

more broadly.

markets, including deposit insurance. Deposit 

insurance eliminates the risk of loss on deposits for 

insured depositors, which makes depositors less 

sensitive to bank risk levels, shielding banks (to an 

extent) from losing deposits. As a result, moral hazard 

can lead to risk-shifting, with the consequences of 

excessive risk-taking being borne by the deposit 

insurer. Absent deposit insurance, depositors have 

incentives to act as bank monitors. Depositors who 

are not sufficiently compensated for a bank’s risktaking are incentivized to move their deposits to a 

different bank offering a better risk-return tradeoff.98

Thus, banks taking on excessive risk face the choice 

of increasing the rates offered to depositors or losing 

deposit funding, a mechanism known as depositor 

discipline. Deposit insurance generally weakens 

depositor discipline because insurance reduces 

depositors’ concerns for the safety of their deposits, 

though evidence is mixed on whether there is a 

measurable effect on bank risk-taking.99

Depositor discipline may result in a proactive 

reduction in bank risk-taking or may manifest as a 

reactive punishment to bank risk, without affecting 

bank risk-taking incentives. While reductions in bank 

risk-taking from depositor discipline improve financial 

stability, discipline in the form of a sudden withdrawal 

of funding and a potential bank run decreases 

financial stability. Therefore, it is important to focus 

on the extent to which depositor discipline results 

in reductions in bank risk-taking when examining 

the potential consequences of increases in deposit 

insurance.

The institutional environment, such as the 

transparency of the accounting system and reporting, 

bank supervision, and well-defined legal rights, plays 

an important role in determining bank risk-taking 

and depositor incentives to monitor banks. Research 

shows that countries with strong institutional 
30 | 2023 Options for Deposit Insurance Reform

environments are less likely to suffer from moral 

hazard associated with deposit insurance.100 As 

discussed in Section 5, tools such as risk-based pricing, 

regulation, and supervision can constrain bank risktaking. In addition, market discipline from non-deposit 

stakeholders at the bank can also limit bank risktaking. Given the prioritization of depositors in the 

claims structure and their sizes relative to institutional 

investors, non-depositor creditors and shareholders 

may play a larger role than depositors in exerting 

market discipline to constrain moral hazard.101

In addition to acting as their own constraints to bank 

risk-taking, the institutional environment may reduce 

depositor monitoring incentives and the efficacy of 

depositor discipline. For example, because monitoring 

is costly, depositors may rely on bank supervisors 

or other market participants to expend monitoring 

effort. Thus, a strong institutional environment both 

mitigates concerns of moral hazard associated with 

deposit insurance and reduces the relative role that 

depositor discipline plays in affecting bank risk.

Several factors limit depositor discipline from 

effectively controlling bank risk. First, depositors may 

face significant costs to monitor and discipline banks, 

as it requires expertise in accessing and evaluating 

bank financials. Second, savvy depositors who are 

most likely to impose depositor discipline may be 

able to eliminate their risk through other means, such 

as using cash management services to limit their 

exposure to uninsured deposits. Thus, depositors 

most equipped to monitor banks may exert little or 

no depositor discipline in practice. Third, the impact 

of depositor discipline may be reduced if banks can 

readily find substitutes for uninsured deposits.102 For 

example, if banks can use—or expect that they can 

use—other forms of funding to meet outflows, then 

potential withdrawal of uninsured deposits has a 

smaller effect on bank risk-taking incentives. 

Finally, depositor discipline can function only if 

uninsured depositors have an expectation of possible 

loss. In most bank failures since 1992, the acquiring 

bank assumed uninsured deposits in the resolution 

100Demirgüç-Kunt and Detragiache (2002), and Hovakimian, Kane, and Laeven (2003).

101Sironi (2003), Gropp and Vesala (2004), Anginer, Demirgüç-Kunt, and Zhu (2014), and Kandrac and Schlusche (2021).

102Ashcraft, Bech, and Frame (2010), and Martin, Puri, and Ufier (Forthcoming).

103 Iyer, Jensen, Johannesen, and Sheridan (2016).

104 Flannery and Bliss (2019) distinguish between corrective market discipline and discipline that could take a “wrong turn” toward depositor runs, with little time 

for corrective action. 

(Table 3.3). Consequently, absent a stress event, an 

uninsured depositor may rationally expect that it 

is unlikely both that their bank fails and that as an 

uninsured depositor they would face a loss in the 

event it did. Further, some uninsured depositors may 

expect that their deposits will be protected in the 

event of a bank failure even if not explicitly insured. 

The infrequency of bank failures with uninsured 

depositor loss weakens the depositor discipline 

mechanism in deterring bank risk-taking.103 However, 

in some cases, including some high-profile ones, 

the losses to uninsured deposits have been high. 

Therefore, although uninsured depositors may not 

monitor the bank in general, in the context of a stress 

event, uninsured depositors may choose to run.

Despite its weaknesses, depositor discipline provides 

a market-based risk deterrent. The threat of a bank 

run may encourage banks to maintain high levels of 

transparency and financial stability to attract and 

retain deposits. To avoid the devastating effects of 

a run, bank managers may avoid risky actions long 

before there is any risk of a bank run. 

If deposit withdrawals are gradual and do not 

culminate quickly into a bank run, withdrawals 

may serve as an early-warning signal to supervisors 

and other market participants. Once a run is 

underway, it is likely too late for a bank to correct any 

mismanagement of risk. In these cases, depositor 

discipline punishes institutions already in deep 

trouble, which is likely to impede the ability of 

supervisors to impose corrective actions and prevent 

the situation from worsening. In such cases, depositor 

discipline is detrimental to financial stability.104 On 

the other hand, bank runs can end risky behaviors 

that had gone unaddressed and that could otherwise 

continue to build if they remained unrectified by 

supervisors or other market forces. Also, the bank run 

may prompt stronger controls on similar risk-taking at 

banks not subject to the run. 

Ultimately, moral hazard depends on several factors, 

of which depositor discipline is just one. Moral hazard 

associated with deposit insurance is less concerning 
2023 Options for Deposit Insurance Reform | 31

when institutions are strong and when depositor 

discipline does not meaningfully drive bank risk 

management decisions. The risk of moral hazard 

arising from deposit insurance should be evaluated 

with comprehensive consideration of the existing 

institutional controls that limit bank risk-taking.

Changes to Other Bank Funding Sources

Because deposits are the primary source of funding 

for banks, changes in deposit insurance coverage can 

significantly affect bank funding choices. In general 

terms, increased insurance coverage is expected 

to decrease the cost and increase the availability 

of deposits for banks, leading to increased bank 

reliance on deposit funding and decreased reliance on 

alternative sources of funding.

Domestic deposits are the largest funding source for 

banks in the aggregate.105 Other non-deposit sources 

of funding include loans from the FHLB System 

105Banks also source deposits from foreign offices, though these are not eligible for FDIC deposit insurance. See CFR §330.3(e).

(known as advances), subordinated debt, borrowing in 

the federal funds market, discount window borrowing, 

and many other small sources of funding. Figure 

4.1 shows that as of December 31, 2022, domestic 

deposits represented about 83 percent of aggregate 

bank liabilities, foreign office deposits represented 

about 7 percent, and FHLB advances represented 

about 3 percent. At year-end 2022, bank reliance 

on domestic deposits was higher than was typical 

in the past few decades, though domestic deposits 

decreased in 2022 in association with the recent cycle 

of monetary tightening. As domestic deposits have 

declined of late, banks have increased their reliance on 

FHLB advances. Funding sources other than domestic 

deposits vary considerably across banks, especially for 

banks of different sizes. 

Changes in deposit insurance coverage are likely 

to affect the liability structure of banks in normal 

economic times and in periods of financial distress. 

Percent

Source: FDIC.

Domestic Oice Deposits Foreign Oice Deposits FHLB Advances

Subordinated Debt All Other Liabilities

0

10

20

30

40

50

60

70

80

90

100

198419851986198719891990199119921994199519961997

1999

2000

2001

20022004

2005

20062007200920102011201220142015201620172019202020212022

FIGURE 4.1

Domestic Deposits, Foreign Deposits, and Federal Home Loan Bank Advances 

Are the Biggest Bank Liabilities
32 | 2023 Options for Deposit Insurance Reform

Increases in deposit insurance coverage may improve 

the availability and cost of domestic deposits to 

banks, reducing bank reliance on other sources 

of funding. This effect might be broadly true at all 

points in the business cycle, but perhaps especially 

so in times of turmoil. In periods of banking system 

stress in the past, bank funding has come under 

pressure as uninsured depositors and other unsecured 

creditors moved their funds out of banks and into 

assets perceived to be safe.106 An increase in deposit 

insurance coverage, by expanding the share of insured 

bank funding, may reduce the degree of funding 

stress banks face during a crisis and lessen their 

reliance on emergency sources of funding. Moreover, 

higher deposit insurance coverage has the potential 

to make banks beneficiaries of the flights to quality 

and liquidity that have historically involved funding 

flows to other financial assets perceived as liquid and 

government backed.

106Acharya and Mora (2015) document that between the freezing of the asset-backed commercial paper market in August 2007 and the broad federal 

interventions in the banking system in October 2008, investors shifted balances away from large deposits and toward securities perceived to have stronger 

government support, such as Treasury and agency debt (and money market funds holding these securities). Facing a shortfall in deposit funding, banks increased 

reliance on the Federal Home Loan Bank System, a government-sponsored entity whose debt is perceived to enjoy implicit government support.

Other Possible Consequences 

Deposit insurance can affect competition between 

banks, competition between banks and nonbank 

financial companies, and competition between 

deposits and other financial assets. Deposit insurance 

can affect how banks compete with one another, 

as insured depositors do not need to worry about 

bank risk. In addition, changes to deposit insurance 

coverage are likely to affect the interaction between 

banks and nonbank financials that compete with 

banks along some dimensions and partner with banks 

along other dimensions. Nonbank financials may 

compete with banks on the liability side, creating 

deposit-like savings or transaction vehicles, and on the 

asset side, making loans traditionally associated with 

chartered depository institutions. Changes to deposit 

insurance may alter the competition between banks 

and financial assets viewed as substitutes. An increase 

in deposit insurance coverage would likely make 

deposits more competitive, decreasing the demand for 

alternative assets at least to some degree. A discussion 

of the competitive effects of deposit insurance is 

beyond the scope of this report.
2023 Options for Deposit Insurance Reform | 33

Section 5: Tools to Support Objectives 

and Address Possible Consequences

107AOCI is a component of regulatory capital for advanced approaches banks and other institutions that opted into including it. See 12 CFR Part 324, Capital 

Adequacy of FDIC-Supervised Institutions, https://www.ecfr.gov/current/title-12/chapter-III/subchapter-B/part-324.

The effectiveness of deposit insurance depends 

critically on its interaction with other policy tools. 

Tools can increase the efficacy with which deposit 

insurance promotes financial stability or may dampen 

undesirable consequences associated with deposit 

insurance. Changes to deposit insurance coverage 

should be made in conjunction with an evaluation of 

the best associated policy tools. 

Bank Regulation and 

Supervision

Bank regulation and supervision play a major role in 

promoting financial stability, limiting the moral hazard 

concerns posed by deposit insurance, and responding 

promptly to risks that arise. For this discussion, 

regulation refers to the body of written rules in the 

Code of Federal Regulations, which have the force of 

law. Supervision refers to the totality of actions the 

federal banking agencies can take to enforce the rules 

and to carry out their respective statutory mandates 

to ensure the safe and sound operation of banks. 

This section refers collectively to supervision and 

regulation as the risk control framework.

This section identifies five areas within the risk control 

framework that may play critical roles in supporting the 

objectives and mitigating the undesired consequences 

of deposit insurance: capital, liquidity, long-term debt, 

interest rate risk, and growth supervision.

Capital 

Capital requirements can minimize the potential 

for moral hazard and promote safe and sound 

banking practices by increasing the costs of risktaking to shareholders, thus increasing shareholder 

discipline. Higher levels of deposit insurance coverage 

weaken depositor discipline and increase bank 

risk-taking incentives. Meanwhile, shareholders 

disproportionately benefit on the upside of such risktaking relative to creditors. Higher levels of capital 

make shareholders more attuned to the downside 

of risk and so increase shareholder discipline, which 

mitigates moral hazard. Therefore, to the extent that 

increased deposit insurance limits erode depositor 

discipline, capital requirements can be used to 

mitigate moral hazard concerns.

Recent developments have also focused attention on 

the definition of capital for regulatory purposes. In 

accordance with U.S. generally accepted accounting 

principles (GAAP), an institution must measure and 

recognize available-for-sale (AFS) debt securities at 

fair value on the balance sheet, while held-to-maturity 

(HTM) debt securities are carried at amortized cost. 

For AFS debt securities, unrealized holding gains and 

losses are excluded from earnings and reported in a 

separate component of equity capital: accumulated 

other comprehensive income (AOCI). AOCI is excluded 

from regulatory capital for most institutions.107

Meanwhile, HTM debt securities are not adjusted to 

fair value in accordance with GAAP and for financial 

reporting purposes. 

Accumulating unrealized losses on debt securities 

increases the likelihood of a run by uninsured 

depositors when those losses are large compared to 

capital. This is because withdrawals coordinated with 

the sale of these debt securities force the recognition 

of losses and promptly force a bank into insolvency. 

For example, SVB’s year-end 2022 Call Report reported 

tier 1 capital of about $17.0 billion; it also reported 

unrealized holding losses of $2.5 billion on AFS 

securities and $15.2 billion on HTM securities. None 

of these losses lowered its tier 1 capital under the 

regulatory capital regulations. 

A more rigorous approach to valuing securities for 

regulatory capital purposes may induce institutions 

to either limit their exposure to highly interest-rate 

sensitive assets or take steps to raise capital, limit 

dividends, shed securities, or hedge their exposures 

earlier when interest rates start to increase. If net 

unrealized holding losses on AFS or HTM debt 

securities are reflected in regulatory capital, then 
34 | 2023 Options for Deposit Insurance Reform

institutions would have had to take actions to increase 

their capital or face regulatory restrictions. Future 

changes to regulatory capital calculations could 

range from incremental steps such as expanding the 

recognition of AOCI in regulatory capital to a larger 

group of banks to more comprehensive changes to 

the regulatory capital framework. It is possible that 

the recognition of net unrealized holding losses 

through the inclusion of AOCI in regulatory capital 

would still prompt withdrawals of uninsured deposits. 

However, incorporating AOCI in regulatory capital 

can promote financial stability by compelling earlier 

remediation actions and prevent the accumulation of 

net unrealized holding losses.

Liquidity 

Liquidity regulations can complement deposit 

insurance to mitigate stability risks associated with 

funding long-term assets with short-term liabilities.

For example, the Liquidity Coverage Ratio (LCR) and 

Net Stable Funding Ratio (NSFR) apply fully to the 

U.S. global systemically important banks (GSIBs). 

Also, the LCR and NFSR apply to institutions with $250 

billion or more in assets, with the degree of stringency 

depending on thresholds related to average weighted 

short-term wholesale funding, and a subset of banks 

between $100 billion and $250 billion that meet 

certain criteria. SVB and Signature, for example, were 

not subject to the LCR or NSFR rules.

Liquidity regulations can support financial stability 

objectives to ensure that banks retain sufficient liquid 

assets to account for the risk of outflows, including 

uninsured depositor runs. For example, simple limits 

on uninsured depositor funding for banks, or unstable 

short-term funding more broadly, can reduce the 

exposure of banks to runs, while requirements on 

liquid assets can provide depositors confidence that 

banks hold sufficient liquidity to meet outflows. 

108 Interest rate risk management is discussed in “Interagency Guidelines Establishing Standards for Safety and Soundness” in Appendix A of Part 364 of FDIC 

regulations. In addition, sensitivity to market risk—including interest rate risk—has been part of the Uniform Financial Institution Rating System since 1997. 

Supervisors require banks to manage their interest rate risk exposures, and failure to meet standards can subject them to enforcement actions. See Fed. Reg., 

Vol. 61, No. 245, December 19, 1996, https://www.fdic.gov/news/financial-institution-letters/1996/fil96105.pdf.

109The trading book capital rules apply only to banks with sufficiently large trading accounts. See Basel Committee on Bank Supervision, Consultative Document: 

Interest Rate Risk on the Banking Book, September 11, 2015, https://www.bis.org/bcbs/publ/d319.pdf.

110Basel Committee on Banking Supervision, Standards: Interest Rate Risk in the Banking Book, April 2016, https://www.bis.org/bcbs/publ/d368.pdf.

111 Fed. Reg. 2017-00431, https://www.govinfo.gov/content/pkg/FR-2017-01-24/pdf/2017-00431.pdf.

112On October 24, 2022, the FDIC and the Board of Governors of the Federal Reserve published an advance notice of proposed rulemaking regarding ResolutionRelated Resource Requirements for Large Banking Organizations that sought comment on the advantages and disadvantages of requiring an expanded group of 

large banking organizations to maintain long-term debt. See 87 Fed. Reg. 64170.

Alternatively, regulations like the LCR and NSFR can 

reduce the mismatch that naturally arises in banks 

that use short-term liabilities to fund long-term assets.

Interest Rate Risk

The incorporation of interest rate risk as part 

of capital or liquidity regulations, or through a 

supervisory approach, can also support financial 

stability objectives.108 Interest rate risk for activities 

banks conduct in their trading books are captured, 

in principle, by trading book capital rules, but no 

regulation exists that provides an explicit constraint 

on how much interest rate risk banks can take for 

exposures held in the banking book.109 Based on 

feedback from commenters, the Basel Committee 

on Bank Supervision did not pursue a regulatory 

approach but subsequently published principles 

for the measurement and management of interest 

rate risk.110

Enhanced risk management standards for interest rate 

risk may reduce risks to financial stability. Evaluating 

the tradeoffs associated with different options 

to address interest rate risk within the regulatory 

and supervisory frameworks is a topic meriting 

consideration but beyond the scope of this report.

Long-Term Debt

Long-term unsecured debt requirements can support 

the financial stability objective of deposit insurance 

in several ways. For example, in 2016, the Federal 

Reserve published a final rule to require U.S. GSIBs 

and the U.S. operations of foreign GSIBs to meet a 

long-term debt requirement and a total loss-absorbing 

capacity, or TLAC, requirement.111 As described by 

the Federal Reserve, the requirement to maintain 

sufficient amounts of long-term debt, which can be 

converted to equity during resolution, was intended to 

help facilitate an orderly resolution of an institution in 

the event of failure.112
2023 Options for Deposit Insurance Reform | 35

Although long-term debt requirements have been 

viewed primarily as a resolution tool and applied to 

bank holding companies rather than banks, long-term 

unsecured debt may also support deposit insurance 

by mitigating moral hazard incentives at banks. For 

example, a significant increase in explicit deposit 

insurance coverage could increase incentives for 

banks to fund themselves with deposits and whatever 

equity is required, and very little debt. In the case 

of full deposit insurance coverage, banks may have 

little incentive to fund their operations with long-term 

unsecured debt. The scope and cost of the deposit 

insurance safety net could greatly expand as a result. 

In contrast to shareholders, long-term debtholders 

are asymmetrically exposed to the downside of bank 

risk-taking; they do not reap the benefits of bank 

risk-taking and are exposed to losses when bank risktaking goes wrong. Moreover, long-term debt holders 

cannot run before the scheduled maturity date, 

incrementally reducing the bank’s exposure to run 

risk. Their exposure to loss and the long-term nature of 

that exposure give long-term unsecured debtholders 

strong incentives relative to shareholders to monitor 

and discipline bank risk-taking by charging banks 

a premium for risk-taking on their issuances or by 

refusing to roll over maturing debt. Increased yields on 

long-term unsecured debt or difficulties in rolling over 

debt can act as an early-warning indicator for bank 

supervisors and trigger intervention that may avert the 

need for a resolution. As an alternative to depositor 

discipline, which is often exerted in the form of a run, 

market discipline through long-term debt—through 

the refusal to roll over long-term debt or through 

pricing—may promote financial stability.

Either to support financial stability objectives or 

mitigate moral hazard concerns associated with 

deposit insurance, the expansion of the application of 

long-term debt requirements beyond the U.S. GSIBs 

is worthy of careful consideration as part of deposit 

insurance reform. 

Rapid Growth 

Strengthening supervision surrounding rapid bank 

growth may also support deposit insurance objectives. 

Rapid growth is generally recognized as a potential 

113 FDIC (1997).

114Ehrlich and Becker (1972), Demirgüç-Kunt and Detragiache (2002), Hovakimian, Kane, and Laeven (2003), and Shoukry (Forthcoming).

115The goals of risk-based pricing include additional objectives, such as transparency. For the purposes of this report, risk-based pricing is discussed primarily in 

regard to its ability to affect bank risk-taking.

indicator for bank risk-taking and the first stage in 

the development of bank financial distress. Rapid 

growth may signal an increase in risk-taking for several 

reasons. First, rapid growth is often coupled with a 

relaxation in loan standards or an expansion into 

new lending businesses. Second, rapid growth likely 

occurs during benign economic environments, and the 

bank and its borrowers are insufficiently tested in an 

economic downturn. Third, as was the case with the 

banks that failed in March 2023, rapid asset growth is 

often fueled by volatile forms of funding. Compared to 

a similarly sized bank with stable growth, the funding 

base at a bank that has grown rapidly is less likely to 

have long-standing relationships with the bank and 

may therefore be more inclined to withdraw funds in 

response to signals of stress.113

Deposit Insurance Pricing

Deposit insurance can cause moral hazard as it 

removes incentives for insured depositors to monitor 

banks, allowing bank management to take on 

excessive risk. Risk-based deposit insurance pricing 

that charges premiums commensurate with the risk 

assumed by banks can mitigate moral hazard.114 Riskbased pricing can also promote fairness, whereby 

banks that pose higher risk pay higher premiums and 

mitigate cross-subsidization from lower-risk to higherrisk banks.

It is difficult to measure bank risk and price 

accurately.115 Data limitations are one of the major 

challenges. Although quarterly bank financial 

filings are extensive, they often lack enough detail 

to accurately price risk. In addition, failures are 

relatively rare events and are clustered in time. 

Statistical analyses that rely on past predictive risk 

factors are less capable of capturing new risks in the 

system, especially when failures are associated with 

macroeconomic events. Liquidity risk measurement 

is especially challenging as bank runs are far fewer 

compared with insolvency failures. Moreover, 

government intervention in recent and past bank runs 

impedes measuring historical losses that would have 

occurred absent extraordinary measures. 
36 | 2023 Options for Deposit Insurance Reform

A risk-based pricing system is unlikely to fully and 

accurately reflect the risks posed by banks. Despite 

such challenges, a well-designed system can help 

measure material risks, identify riskier banks and 

charge those banks higher premiums, and discourage 

banks from excessive risk-taking. Changes to pricing 

based on bank liability structure and interest rate risk 

may mitigate moral hazard concerns and maintain 

fairness within a deposit insurance system.

Pricing for Risks in Liability Structure

Bank liability structure can influence the FDIC’s risk 

position in several ways. First, the FDIC’s deposit 

insurance assessment revenue depends on how a 

bank funds its assets between equity and liabilities. 

The assessment base used to calculate the deposit 

insurance premium is average consolidated total 

assets minus average tangible equity, which 

approximates a bank’s total liabilities. The more a 

bank funds its assets with liabilities instead of equity, 

the higher the assessment base and the higher the 

assessment revenue. 

Second, the FDIC’s loss exposure is determined 

by the failed bank liability structure. The National 

Depositor Preference statute in the Omnibus Budget 

Reconciliation Act of 1993116 established the following 

priority order of receivership claims of creditors if a 

bank fails:117

1. Secured claims

2. Administrative expenses of the receivership

3. Domestic deposit liabilities

4. General creditor claims including unsecured

borrowing and foreign deposits

5. Subordinated claims

6. Cross-guarantee claims

7. Stockholders

When a bank fails, secured liabilities such as FHLB

advances, repurchase agreements, public deposits, 

and borrowings from the Federal Reserve Bank 

discount window have the highest priority claim 

116Pub. L. 103-66, § 3001.

117 FDIC (2000) and Marino and Bennett (1999).

118Under depositor preference, insured depositors (subrogated claims of the FDIC) and uninsured depositors share in losses and incur the same loss rate on 

their claim.

119According to Shibut (2002), borrowings from the Federal Reserve Board discount window face potential loss because FDICIA allows the FDIC to charge the 

Federal Reserve Board for failed-bank losses attributable to discount window borrowings made to undercapitalized banks. 

on the receivership. Assets used as collateral for 

secured liabilities are unavailable to the FDIC. Then, 

administrative expenses of the receivership are paid. 

Insured deposits are paid in full by the FDIC, and then 

the FDIC replaces the insured depositors in the priority 

of payments. Domestic depositors have priority over 

non-collateralized, non-deposit creditors.118 Then, 

general creditors are paid, followed by subordinate 

creditors and finally stockholders. 

Based on the priority of the claims, a bank’s loss given 

failure is influenced by its liability structure. Banks 

with high shares of secured liabilities and insured 

deposits will result in higher cost to the FDIC compared 

to banks with identical assets but with lower secured 

liabilities and insured deposits. 

Third, a bank’s liability structure can influence its risktaking behavior. Secured liabilities are collateralized 

and are first in priority of the claims.119 As a result, 

the holders of these liabilities have little incentive 

to monitor or discipline banks beyond the specific 

collateral backing their claim. Banks that rely more 

heavily on secured liabilities and less on unsecured 

credits subject themselves to less market discipline. 

In addition, readily available secured liabilities can 

fuel a bank’s high growth strategies, which have 

been associated historically with increased failure 

probability. The current deposit insurance pricing 

system accounts for the effect secured liabilities can 

have on expected failure losses by including liabilities 

in the assessment base. Similarly, unsecured liability 

holders can affect the risk-taking behavior of banks 

because they have an incentive to impose market 

discipline on banks by demanding a higher rate 

when banks assume greater risk (see Regulation 

and Supervision). 

The deposit insurance pricing systems for large 

banks and highly complex banks include liquidity 

risk measures to capture these institutions’ ability to 

withstand funding-related stress and the relative 
2023 Options for Deposit Insurance Reform | 37

magnitude of potential losses to the FDIC should such 

an institution fail.120 The funding-related stress metrics 

for these banks are composed of a core deposit to 

total liabilities ratio and a balance sheet liquidity ratio. 

The core deposit metric excludes uninsured, nonbrokered time deposits. Meanwhile, balance sheet 

liquidity metrics measure highly liquid assets relative 

to potential short-term outflows, including outflows of 

uninsured deposits. In addition, funding-related stress 

metrics for highly complex banks include an average 

short-term funding to average total assets ratio that 

measures a bank’s reliance on short-term funding.121

The loss severity measure applies a standardized set 

of assumptions regarding liability runoffs, including 

uninsured deposit runoff, and the recovery value 

of asset categories to calculate possible losses to 

the FDIC.

The measures of a bank’s ability to withstand fundingrelated stress used in pricing do not explicitly account 

for the liquidity risk posed by bank reliance on 

uninsured deposits. Implicitly, funding-related stress 

is captured in part by including liquidity (“L”) and 

sensitivity to market risk (“S”) in supervisory bank 

CAMELS ratings. Uninsured deposits are a form of 

unsecured credit that pose liquidity risk to a bank. 

Ensuring that such risks are appropriately addressed 

within large and highly complex banks could involve 

changes to the current pricing systems.122 Changes 

to account for uninsured deposit risk directly could 

be made within the scorecards applicable to these 

institutions or could take the form of a separate 

adjustment measure that increases a bank’s 

assessment rate to reflect increased risk to the DIF. 

Adjusting pricing for uninsured deposit risks at large or 

highly complex banks would be an incremental change 

and may fit within existing liquidity approaches 

applied to these institutions. 

120 For the purposes of deposit insurance pricing, a large bank is defined as an insured depository institution with assets of $10 billion or more. A highly complex 

bank is defined as (1) An insured depository institution (excluding a credit card bank) that has had $50 billion or more in total assets for at least four consecutive 

quarters that either is controlled by a U.S. parent holding company that has had $500 billion or more in total assets for four consecutive quarters, or is controlled 

by one or more intermediate U.S. parent holding companies that are controlled by a U.S. holding company that has had $500 billion or more in assets for four 

consecutive quarters, and (2) a processing bank or trust company, defined in 12 CFR 327.8(s).

121Garnett, Henry, Hoople, and Mihalik (2020).

122Deposit insurance pricing for large and highly complex institutions is outlined in 12 CFR Part 327.16(b).

123 Figure 5.1 provides information on mismatch only for assets and liabilities that mature or reprice in more than a year and excludes those assets and liabilities 

with less than one year until maturity or repricing. The notional amount of interest rate risk derivatives graphed is for all interest rate risk hedging, which can 

include hedging for assets and liabilities with less than one year until maturity or repricing. As a result, the shortfall in notional amount of interest rate risk 

derivative contracts to cover the mismatch is likely to be greater than shown in Figure 5.1.

Pricing Interest Rate Risk

Interest rate risk is the potential for movements in 

interest rates to reduce bank earnings and capital. 

Interest rate risk is inherent in banking as banks 

generally borrow short and lend long. Banks make 

loans and other investments with longer maturity 

using non-maturity deposits and other liabilities that 

tend to have shorter maturities.

Mismatch in asset and liability maturities exposes 

banks to repricing risk, one type of interest rate risk. 

The extent of mismatch in asset and liability maturities 

is important in assessing a bank’s exposure to interest 

rate risk. Aggregate balance sheet information in 

Figure 5.1 shows that the industry increased its 

exposure to longer-term assets while reducing its 

reliance on longer term liabilities, further escalating 

the mismatch in maturities. While on-balance sheet 

mismatch in asset and liability maturities is widening, 

it is possible that the banks are hedging their interest 

rate risk using off-balance sheet instruments such as 

interest rate derivatives. Figure 5.1 also shows the 

aggregate gross notional amount of interest rate risk 

derivative contracts held for purposes other than 

trading in the banking sector. While the notional 

amount of interest rate risk derivative contracts 

roughly doubled from 2010 to 2022, it has not kept up 

with the increasing trend in on-balance sheet asset 

and liability mismatch. Moreover, some portion of 

interest rate derivatives is likely accommodations to 

loan customers (for example, to convert a variable rate 

loan to fixed rate from the customer’s perspective) 

rather than hedges of banks’ own investments. The 

notional amount of interest rate risk derivatives is 

lower than the difference in long-term assets and 

liabilities.123 Overall, Figure 5.1 indicates that bank 

exposure to repricing risk has increased over time.
38 | 2023 Options for Deposit Insurance Reform

Besides repricing risk, there are four other types of 

interest rate risk: yield curve risk, basis risk, option 

risk, and price risk.124 Yield curve risk refers to risk 

associated with changes in the shape or slope of 

the yield curve. If the yield curve flattens or inverts 

so that the short-term interest rate rises while the 

long-term rate remains the same or falls, then banks 

face higher funding cost when loan revenue remains 

the same or falls. Differences in maturity or repricing 

frequency of assets and liabilities also expose banks 

to yield curve risk. Basis risk refers to risk associated 

with unequal adjustments in different market rates. 

Even when assets and liabilities have similar repricing 

characteristics, the earnings spread from these 

instruments can differ because of the index rates used. 

For example, Treasury rate-based deposit rates can 

change differently than floating loan rates. Interest 

rate movements can also expose banks to option 

risk, which can change banks’ cash flow as a creditor 

or borrower exercises the option to withdraw or pay 

back debt at different times. For example, a depositor 

can withdraw funds to invest in higher-yielding 

instruments when interest rates rise, while a borrower 

124 FDIC, “Sensitivity to Market Risk,” Risk Management Manual of Examination Policies, section 7.1, https://www.fdic.gov/regulations/safety/manual/

section7-1.pdf.

can prepay and refinance a mortgage when interest 

rates fall. Price risk is the risk that market value 

instruments change value in response to movements 

in interest rates. When interest rates rise, the 

value of investment securities declines, causing 

unrealized losses. 

The deposit insurance pricing system could be 

improved by incorporating interest rate risk metrics, 

as they are not explicitly included but are implicitly 

included through the incorporation of supervisory 

ratings. Plausibly, price risk of interest rate movements 

can be incorporated into the system by measuring 

potential changes to the fair value of the bank’s 

investment securities from movements in the interest 

rate. Similarly, unrealized losses could be incorporated 

into risk-based pricing. In contrast, it would be difficult 

to include metrics to accurately measure repricing 

and yield curve risk of interest rate movements into 

the system.

Refinements to deposit insurance pricing can allocate 

the cost of assessments more appropriately based on 

$ Billions

Source: FDIC.

FIGURE 5.1

Loans and Securities That Mature or Reprice in More Than 1 Year Rose 

Dramatically During the Pandemic

Interest Rate Derivatives (Notional Amount)

Loans & Securities Maturing/Repricing > 1 Year

Liabilities Maturing/Repricing > 1 Year

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2023 Options for Deposit Insurance Reform | 39

the risks taken by institutions and can, to an extent, 

incentivize more prudent risk-taking by banks. But 

there are limits to the extent risks can be accurately 

priced and to the premiums the FDIC can realistically 

charge. Thus, while pricing is one tool that can account 

for risk in a deposit insurance regime, the limitations 

of pricing suggest that it should be part of a joint 

approach to manage risk-taking incentives alongside 

other tools discussed in this section.

Fund Adequacy

The FDI Act requires that the FDIC Board of Directors 

designate a reserve ratio for the DIF, known as the 

designated reserve ratio (DRR). The reserve ratio is 

measured as the ratio of the Fund balance (or net 

worth) to estimated insured deposits. The DRR is set 

by the Board based on analysis of the risk of losses 

to the DIF, economic conditions affecting insured 

depository institutions, prevention of sharp swings 

in assessment rates, and other factors the Board 

determines appropriate. The DRR for any year may not 

be less than 1.35 percent. Generally, if the reserve ratio 

falls below the statutory minimum of 1.35 percent or 

is expected to within six months, the FDIC must adopt 

a restoration plan to restore it to at least 1.35 percent 

within eight years. Since 2010, the Board has set the 

DRR at 2.0 percent with the view that the DRR is a longterm goal.

Increases in insured deposits, because of increases 

in the deposit insurance limit or other changes, 

125Based on the Deposit Insurance Fund balance as of December 31, 2022.

decrease the reserve ratio. So any changes to the 

deposit insurance limit should also consider the 

effect on the reserve ratio, including whether the 

minimum reserve ratio, set by law, and the DRR, set 

by the FDIC Board based on statutory factors, are 

still appropriate, and the amount of time required to 

reach these levels. Although precise information on 

the distribution of account balances is not available, 

the volume of uninsured deposits relative to the 

number of accounts suggests that a modest increase 

in the standard deposit insurance amount is unlikely 

to have significant implications for the reserve ratio. 

Eliminating a deposit insurance limit altogether and 

providing universal deposit insurance would increase 

the volume of insured deposits by about 70 to 80 

percent and decrease the reserve ratio by more than 

40 percent, excluding associated inflows that might 

result from more coverage.125

Restoring the DIF to the statutory minimum reserve 

ratio, absent changes to requirements related to 

adopting a restoration plan, would require raising 

deposit insurance assessments on the industry. 

Because assessments are based on total assets less 

average tangible equity, or essentially total liabilities, 

an increase in insured deposits at a bank due to 

increases in the deposit insurance limit would not 

inherently result in greater assessment revenue. 

Instead, assessment rates would likely have to be 

increased across the entire industry. 
PAGE INTENTIONALLY LEFT BLANK
2023 Options for Deposit Insurance Reform | 41

Section 6: Options for Increased 

Deposit Insurance Coverage

This section presents several options for alternative 

deposit insurance schemes. The options differ in how 

much they deviate from the statutory status quo and in 

their likely effects upon deposit insurance objectives. 

Of the options considered, the report suggests 

that Targeted Coverage, which allows for higher 

or unlimited deposit insurance limits for business 

payment accounts, has the greatest potential to 

meet many of the objectives of the deposit insurance 

system while mitigating many of the undesirable 

consequences of raising the limit more broadly.

Limited Coverage maintains the existing deposit 

insurance framework that insures all depositors up 

to a limit by ownership rights and capacities at the 

current limit or a higher limit. Given its long history, 

Limited Coverage is the best tested model of deposit 

insurance. However, Limited Coverage does little to 

address the financial stability concerns associated 

with the events of March 2023 and the broader trends 

in the banking system. 

Unlimited Coverage provides unlimited deposit 

insurance for all deposits. Although Unlimited 

Coverage likely provides the greatest financial 

stability benefits of the options considered, it is also 

a significant departure from the existing system. In 

addition to its possible effects on bank risk-taking, 

Unlimited Coverage may cause significant disruptions 

to other asset markets and would require a substantial 

increase in assessments on the industry to support the 

adequacy of the DIF.

Targeted Coverage considers different coverage across 

account types, with a focus on providing significantly 

higher or unlimited coverage to business payment 

accounts. Because losses on uninsured deposits 

associated with business payments are most likely 

to create spillovers, providing higher coverage on 

these deposits increases financial stability without 

expanding the safety net more broadly. Relative to 

investment accounts, business payment accounts 

are less likely to seek yield and are more difficult 

to diversify across banks in the current system to 

obtain full deposit insurance. The major limitations to 

Targeted Coverage are identifying business payment 

accounts subject to a higher deposit insurance limit 

and restricting the ability of depositors to exploit 

coverage differentials. Although more analysis is 

warranted, Targeted Coverage provides significantly 

greater financial stability benefits than Limited 

Coverage while attenuating many of the drawbacks 

associated with Unlimited Coverage.

This section also explores additional options that 

may be considered alongside Limited Coverage and 

Targeted Coverage in which some depositors remain 

uninsured. The section reviews voluntary excess 

deposit insurance, in which individual banks or 

depositors may choose to insure above the deposit 

insurance limit. If large concentrations of uninsured 

deposits remain under Limited Coverage or Targeted 

Coverage, additional approaches could include 

requiring collateralization of large, uninsured deposits 

or limiting their convertibility.

Limited Coverage

An option for deposit insurance reform is to maintain 

the current deposit insurance framework that provides 

insurance to depositors up to a specified limit by 

ownership rights and capacities as discussed in 

Section 3. Although retaining the status quo deposit 

insurance coverage limits, increasing limits but 

maintaining them at finite levels, or simplifying the 

deposit insurance system while maintaining limited 

coverage are technically different deposit insurance 

structures, many of the fundamental effects of such 

proposals on the objectives and consequences of 

deposit insurance are similar. A change to the deposit 

insurance coverage limit could be of any magnitude—

to $500,000, $1 million, $2.5 million, or $10 million, 
42 | 2023 Options for Deposit Insurance Reform

for example.126 While the benefits and costs of raising 

the limit vary, the variation is differences in degree 

not kind. This report does not consider any precise, 

finite coverage limit and evaluates as one any reform 

options that maintain the existing deposit insurance 

framework in which nontrivial amounts of all deposit 

products are explicitly uninsured. 

The existing limited coverage deposit insurance 

framework is the best tested model of deposit 

insurance. It has been used in the United States since 

the founding of the FDIC and is in place in many 

other countries as well. Maintaining this framework 

minimizes transition costs and potential broader 

market disruptions associated with larger departures 

from the status quo. 

The costs of a deposit insurance determination 

associated with Limited Coverage are the same as 

those in the current system, which can be significant, 

and relate to financial stability. Consequently, in 

an option with limited, but an increased, deposit 

insurance coverage limit, simplification merits 

consideration. The FDI Act provides depositors 

with separate deposit insurance coverage at each 

chartered institution where they hold deposits. The 

deposit insurance coverage limit is applied to deposit 

amounts aggregated by different ownership rights 

and capacities (known as ownership categories) 

at the same institution.127 Simplification can also 

complement the Targeted Coverage option, which is 

discussed below.

As of May 2023, there are 14 ownership categories 

that are covered separately by deposit insurance up 

to the standard maximum deposit insurance amount 

126Expressed as a percentage of per capita GDP, U.S. deposit insurance coverage is the most comprehensive of any G7 peer and among the highest of the G20 

countries. Current U.S. deposit insurance coverage also exceeds substantially both the current median IADI (International Association of Deposit Insurers) 

member coverage and IADI historical average. Using information from the IADI Annual Deposit Insurance Survey of 2022 on coverage levels and the IMF World 

Economic Outlook, October 2022, for GDP, the average coverage limit of members of the Financial Stability Board is $75,367 and the average coverage to per 

capita GDP is 193.5 percent. In the United States, the current coverage level of $250,000 is 328 percent of U.S. per capita GDP. This is the sixth largest number of 

all of the countries who are part of the Financial Stability Board, and the largest of all of the G7 countries. See https://www.iadi.org/en/research/data-warehouse/

deposit-insurance-surveys/.

127See 12 U.S.C. § 1821(a)(1)(C). In determining the net amount due to a depositor, the FDIC is required to aggregate all deposits in the insured depository 

institution that are maintained by a depositor “in the same capacity and the same right.” In other words, all deposits that an accountholder has in the same 

ownership category at the same bank are added together and insured up to the standard insurance amount. The United States is one of the few international 

jurisdictions that provide deposit insurance on a per ownership category, rather than per depositor, basis. Depending on the organization of the depositor’s 

accounts, this results in a higher deposit insurance coverage level per depositor than the coverage limit would indicate.

128The categories are single accounts, certain retirement accounts, joint accounts, revocable trust accounts, irrevocable trust accounts, employee benefit plan 

accounts, corporation/partnership/unincorporated association accounts, government accounts, mortgage servicing accounts, public bond accounts, irrevocable 

trusts accounts with banks as trustee, annuity contract accounts, custodian accounts for Native Americans, and accounts of a bank pursuant to the bank deposit 

financial assistance program of the Department of Energy. For the most common insurance categories, see FDIC, “Your Insured Deposits,” https://www.fdic.gov/

resources/deposit-insurance/brochures/insured-deposits/. Note that rules for revocable trusts, irrevocable trusts, and mortgage service accounts will change on 

April 1, 2024. For information on these changes, see “Final Rule on Simplification of Deposit Insurance Rules for Trust and Mortgage Servicing Accounts,” https://

www.fdic.gov/news/fact-sheets/final-rule-trust-mortgage-accounts-01-21-22.pdf.

of $250,000 per institution.128 Multiple ownership 

categories complicate the resolution process, 

potentially delay payments to insured depositors, 

and add uncertainty to the FDIC’s ability to provide 

liquidity to uninsured depositors through an advance 

dividend. Reducing the number of categories or 

limiting deposit insurance to a unique depositor 

identifier (such as a social security number or tax 

identification number) would reduce some of the 

challenges of resolution. However, a reduction or 

elimination in the number of deposit insurance 

categories reduces the effective deposit insurance 

limit available to a depositor with accounts in multiple 

categories.

Simplification may also contribute to depositor 

protection by reducing barriers to understanding 

deposit insurance coverage and by reducing 

asymmetries across depositors based upon their 

financial, legal, and regulatory knowledge. Clarity on 

deposit insurance coverage can then help depositors 

make informed decisions about their deposit choices. 

Clearer information may further financial stability, as 

uncertainty about insurance coverage in the event of a 

bank run is likely to lead depositors to withdraw their 

funds, even when their accounts may be fully covered.

Financial Stability

As the events of March 2023 revealed, financial 

stability under the current deposit insurance 

framework can be improved. Bank runs at Silicon 

Valley Bank and Signature were reminiscent of runs 

that occurred before the FDIC’s creation. Further, 

market perceptions of protection of uninsured 

depositors may have changed following the invocation 

of the systemic risk exception in March 2023 amid 
2023 Options for Deposit Insurance Reform | 43

concerns about the potential for bank runs at multiple 

regional banks. Uncertainty associated with protection 

of uninsured depositors reduces the transparency and 

consistency of the deposit insurance system.

Incentives to run are created by the potential loss 

incurred by depositors. Although increases in the 

deposit insurance limit reduce run risk from depositors 

covered by the increase, run risk can be driven 

primarily by a small fraction of depositors who hold 

large concentrations of deposits.129 Even if deposit 

insurance limits increase, run risk to banks holding the 

largest deposits persists. 

The financial stability benefits of the Limited Coverage 

option are strongly related to the amount of the 

increase in the deposit insurance limit. Even with 

a ten-fold increase in deposit insurance, there are 

likely to remain large uninsured deposits that can 

pose financial stability concerns. Because the existing 

framework of limited deposit insurance coverage is 

not expected to meaningfully affect financial stability, 

it is important that this option is considered alongside 

other available tools to improve upon financial 

stability. 

Such tools include reducing the runnable deposits 

in the banking system and discouraging uninsured 

depositors from running during an impending 

failure. To discourage the accumulation of uninsured 

deposits, regulations that specifically target the ratio 

of uninsured deposits to bank assets would directly 

affect the bank’s willingness or ability to accept runsusceptible uninsured deposits. Extending to other 

institutions simplified versions of existing liquidity 

regulations that apply to large institutions may 

also promote financial stability and limit runs. The 

supervisory framework can also play an important 

role in monitoring interest rate risk and subjecting 

banks to enforcement actions if they fail to remediate 

risks associated with unstable funds. Moreover, the 

deposit insurance pricing system could be modified to 

incorporate additional premiums for concentrations of 

uninsured deposits, short-term liabilities, or maturity 

mismatch. More generally, the pricing system could 

better incorporate risks, such as interest rate risk, that 

may be associated with financial stability concerns. 

129 In congressional testimony on March 27, 2023, FDIC Chairman Gruenberg noted that the ten largest accounts at SVB held $13.3 billion collectively. See https://

www.fdic.gov/news/speeches/2023/spmar2723.html. In addition to the size of the largest ten accounts, the average account above the insurance limit at SVB as 

of December 2022 was more than $4 million. Thus, the incentive of depositors to run at SVB would likely be materially similar whether the deposit insurance limit 

was $250,000 or even ten times that limit.

Explicit collateralization requirements, such as those 

discussed in Secured Deposits later in this section, 

could further lower prospective losses for uninsured 

depositors, decreasing their incentives to run. In 

addition, limiting the full withdrawal capacity of large, 

demandable accounts may be considered to promote 

financial stability when considering limited deposit 

insurance, discussed in Limited Convertibility later in 

this section.

Moral Hazard, Market Discipline, and Depositor 

Discipline

Existing levels of depositor discipline, overall market 

discipline, and moral hazard are unlikely to be greatly 

affected by changes to deposit insurance coverage 

limits that maintain the existing deposit insurance 

framework. This is especially the case for coverage 

limit changes that raise the rate by less than several 

orders of magnitude. For example, an increase in 

coverage from $250,000 to $2.5 million would directly 

affect only depositors with accounts in the affected 

range. Among previously uninsured depositors, those 

who become fully insured with a limit increase are 

likely to have been those with the least resources to 

monitor banks and to affect risk-taking incentives, 

though uninsured depositors with multimillion dollar 

balances may be more influential monitors at smaller 

institutions. Overall, the removal of monitoring 

incentives for depositors whose accounts become fully 

insured following a limited coverage change is unlikely 

to significantly affect other market participants and 

bank risk-taking behavior. 

Broader Market Effects

The competitive effects of increases in coverage 

limits within the existing deposit insurance structure 

are tied to the degree of increase. A given coverage 

increase may affect only a small percentage of 

consumer accounts, but it may apply to a much larger 

share of accounts used by businesses. The effects on 

competing financial products are likely minimal since 

there are few compelling alternatives to transaction 

accounts for business purposes.
44 | 2023 Options for Deposit Insurance Reform

Consistency and Transparency

The current deposit insurance framework suffers 

from perceived consistency and transparency issues. 

Deposit insurance coverage reform options that 

maintain greater amounts of the existing framework 

are more likely to perpetuate the existing perceived 

consistency and transparency issues. 

Fund Adequacy

The effects on Fund adequacy would depend upon 

the extent of changes to the deposit insurance limit. 

Limited information on the volume of deposits at 

alternative thresholds makes it difficult to determine 

the extent to which the DIF would need to increase. 

By number, the vast majority of deposit accounts 

are already insured and to the extent that uninsured 

deposits are heavily concentrated among the largest 

depositors, the less increases in the limit would affect 

the DIF. The anticipated effects to the DIF, therefore, 

are likely modest.130

Unlimited Coverage

Extending unlimited deposit insurance coverage to 

all deposits is a second option for deposit insurance 

reform.131 This option would directly and effectively 

address financial stability concerns. Of the options 

considered, however, unlimited deposit insurance is 

likely to have the most dramatic effects on depositor 

discipline and the most likely to have broader market 

implications. It would also have the largest effect 

on the exposure to and adequacy of the DIF. To 

limit undesirable consequences, unlimited deposit 

insurance would need to be paired with other tools, 

and the efficacy of those tools would need to be 

assessed to ensure that they meet policy objectives.

An additional benefit of Unlimited Coverage is 

that it eliminates the need for a deposit insurance 

determination and simplifies the resolution process. 

130 For example, FDIC (2000) estimated that a doubling of the deposit insurance limit at the time from $100,000 to $200,000 would be associated with an increase 

in insured deposits of $270 billion relative to almost $3 trillion in insured deposits at that time.

131Proposals for unlimited deposit insurance are not new. Out of the 150 proposals for deposit insurance made in Congress between 1886 and 1933, 80 percent 

called for insurance of all or nearly all deposits (FDIC 1984, pp. 29–30).

132Unlimited deposit insurance will not eliminate bank failures, and depositors still may suffer inconvenience costs associated with failure. These costs may be a 

reason why insured depositors sometimes run from a bank approaching failure (Davenport and McDill, 2006). A large component of inconvenience costs is likely 

the possibility of restricted access to deposited funds in the event of failure. Without the need to complete an insurance determination and with an adequately 

capitalized deposit insurance fund (or a credible commitment from the Treasury to ensure the FDIC can meet all financial obligations), depositors should not 

experience restricted access to their funds. Since unlimited deposit insurance does not eliminate bank failures entirely, there will still be some inconvenience 

costs associated with depositors needing to find a new bank on a timeline that is outside of their control during a failure. (These costs are borne by depositors 

withdrawing their deposits from a bank, but the timing of when these costs are felt is under the control of the depositor outside of a failure.) Thus, despite being 

greatly reduced through the provision of unlimited deposit insurance, incentives to run will remain. These incentives are likely minimal. 

Also, as all deposits are insured, there is no need 

to secure deposits or limit their convertibility and 

no basis for voluntary excess deposit insurance. 

Consequently, those options do not apply to Unlimited 

Coverage.

Financial Stability

While there are various methods to reduce 

destabilizing bank runs, the most direct way is to 

remove the incentives for depositors to run. These 

incentives are inseparably tied to the degree to which 

depositors are subjected to potential loss in the 

event of a bank failure. The possibility of bank runs 

can be almost fully eliminated by expanding deposit 

insurance to all depositors and deposits. As discussed 

in the next section, however, increased moral hazard 

could increase overall risk in the system and affect 

financial stability.

Moral Hazard, Depositor Discipline, and 

Market Discipline

Although unlimited deposit insurance would promote 

financial stability through the decreased propensity for 

bank runs, it also has the potential to exacerbate moral 

hazard problems, as depositors have no incentive to 

evaluate bank risk-taking behavior when placing their 

deposits and minimal incentive to regularly monitor 

bank risk-taking behavior.132 Depositor discipline can 

occur on an ongoing basis to the extent depositors 

monitor and influence bank risk-taking. For such 

depositor discipline to be effective, depositors must 

not only have the incentive to exercise discipline, they 

also need willingness and expertise to evaluate bank 

behavior. Depositor discipline can also occur after the 

fact in the form of bank runs. Depositor discipline in 

the form of bank runs has significant financial stability 

costs, but it also puts an end to problems at a bank 

that may have gone unaddressed. Unlimited deposit 

insurance coverage would for practical purposes put 

an end to both types of depositor discipline.
2023 Options for Deposit Insurance Reform | 45

Although unlimited deposit insurance removes 

depositor discipline, it need not reduce overall market 

discipline on a bank from non-deposit creditors, such 

as debt holders and stockholders. It is even possible 

that non-deposit creditors would perceive themselves 

to be at increased risk of loss under a system of 

unlimited deposit insurance coverage and have greater 

incentives to exercise discipline. This is because the 

coverage of all depositors, and the operational ease 

of doing so, may make it unlikely that a systemic risk 

determination would be warranted.

Another consideration is that unlimited deposit 

insurance would likely increase banks’ incentive to 

fund themselves largely with deposits and less with 

uninsured funding sources whose claimants have 

incentives to monitor risk. On balance, an explicit full 

deposit insurance guarantee of all deposits would 

greatly increase banks’ ability to access and rely 

on federally guaranteed funding. With bank runs 

effectively eliminated, the burden on other parts of 

the system of controlling large buildups of bank risk 

would increase. Any underperformance of supervision, 

regulation, deposit insurance pricing, or other risk 

control mechanism such as discussed in Section 

5 would likely have greater cost to the DIF under a 

system of unlimited deposit insurance.

Existing tools can support Unlimited Coverage by 

mitigating the associated moral hazard concerns. 

For example, increasing capital requirements or 

expanding long-term unsecured debt requirements 

may provide meaningful constraints to moral hazard 

in the absence of depositor discipline with unlimited 

insurance. In addition, moral hazard concerns under 

Unlimited Coverage may be addressed to some 

degree with interest rate restrictions on deposits. 

There is long-standing historical precedent for the use 

of interest rate controls as a tool to constrain bank 

risk-taking, dating to the establishment of federal 

deposit insurance in the United States and the Banking 

Act of 1933, and implemented through Regulation Q 

(discussed in Section 3). Although general interest 

rate restrictions on deposits were gradually removed 

starting with the Depository Institutions Deregulation 

and Monetary Control Act of 1980 and ending with 

the repeal of Regulation Q in 2011, they are still 

133An important caveat is that unlimited insurance would apply to domestic deposits, retaining the currently explicit absence of coverage of foreign deposits.

134As of fourth quarter 2022, the DIF was $125.5 billion, the reserve ratio was 1.27 percent, and estimated insured deposits were $10.1 trillion. To meet the 

minimum reserve ratio of 1.35 percent, the DIF would need to be $136.4 billion. If all of the $17.8 trillion of domestic deposits were insured, everything else equal, 

then the DIF would need to be $240 billion to reach a reserve ratio of 1.35 percent.

used to limit risk-taking incentives of less than wellcapitalized banks under the Financial Institutions, 

Reform, Recovery, and Enforcement Act of 1989. Under 

a significant expansion of the deposit insurance safety 

net, it is worth considering whether interest rate 

restrictions are warranted to mitigate moral hazard 

concerns.

Broader Market Effects

The competitive effects from a regime change to 

unlimited deposit insurance are potentially large. 

Deposits exist within a broad range of competing 

financial products. Absent accompanying changes in 

returns, extending deposit insurance coverage to all 

deposits will make deposits more attractive relative to 

other products. This would increase customer demand 

for deposit products and reduce demand for other 

competing assets. To the extent a significant shift 

toward deposits occurs, deposit rates and asset prices 

would adjust to reach a new equilibrium allocation of 

aggregate investment across products. 

Consistency and Transparency

Explicit insurance coverage of all deposits produces 

a consistent and transparent deposit insurance 

framework. All depositors know with certainty that 

their deposits are safe. Expanding insurance coverage 

to all deposits and depositors minimizes potential 

differences in coverage based on a customer’s ability 

or knowledge about the opportunities for expanded 

coverage, for example, through pass-through 

coverage.133

Fund Adequacy

Unlimited deposit insurance coverage would have 

significant implications for the size of the DIF. Before 

accounting for possible deposit inflows, unlimited 

deposit insurance would increase the size of the 

DIF required to achieve a given ratio of the Fund to 

insured deposits by about 70 to 80 percent.134 The 

need to increase the DIF would require that the FDIC 

raise assessments on banks and maintain them at 

levels significantly higher than their current levels. In 

addition, unlimited deposit insurance may warrant 

an adjustment to the designated reserve ratio. FDIC 

losses would be higher in a failure, other things equal, 

because there would be no uninsured depositors 
46 | 2023 Options for Deposit Insurance Reform

to take loss. Failures may be less costly if unlimited 

deposit insurance prevents costly bank runs or more 

costly if it allows risks on bank balance sheets to go 

unaddressed for long periods of time.

Targeted Coverage

A third option for deposit insurance reform is to offer 

different deposit insurance coverage across account 

types, or Targeted Coverage. This option may extend 

unlimited coverage to some account types and 

provide limited coverage to others, or it may provide 

limited coverage across all account types but with 

different limits. This option may help target financial 

stability objectives associated with higher or unlimited 

insurance while maintaining depositor discipline and 

mitigating disruptions across markets that compete 

with deposits. Targeted Coverage is analogous to the 

TAG program discussed in Section 3. For this option, 

the qualifying accounts could be analogous to or 

different than those in the original TAG program.135

The account types that may merit higher coverage are 

those used for payment purposes, specifically business 

payment accounts.136 Conceptually, deposits have two 

distinct purposes: payment services and investment. 

Payment services enable depositors to easily transfer 

monetary value as part of the exchange of goods and 

services. In contrast, the primary purpose of deposits 

used for investment is to provide depositors a store of 

value and a return on investment. While deposits used 

for investment have many substitute products against 

which a depositor can assess a risk-return tradeoff, 

deposits used for payment services have fewer 

substitutes. Further, deposits used for investments 

are not essential to support the daily operations of 

households and businesses: investors regularly incur 

losses to investments without prompting significant 

financial or economic spillovers. In contrast, deposits 

used for payments are essential for businesses and 

households to manage cash inflows and outflows. 

135Although not entirely analogous, the European Bank Recovery and Resolution Directive provides differential priority in a resolution between natural persons 

and small businesses. See Article 108(1)(a) of Directive 2014/59/EU at https://www.eba.europa.eu/regulation-and-policy/single-rulebook/interactive-singlerulebook/100804.

136Similar to accounts in the TAG program, account types meriting higher coverage may be broader than business payment accounts, such as all transaction 

accounts. Broader definitions may be more practical to implement or may serve a broader policy objective to also include households that require large account 

balances for transaction purposes.

137As a back-of-the-envelope calculation, median monthly income in the United States in fourth quarter 2022 was $4,709 (Bureau of Labor Statistics, not 

seasonally adjusted, weekly income multiplied by 4.34). Defining small businesses as those with less than 500 employees, a deposit insurance limit of $2.5 million 

for accounts with either an EIN or TIN (rather than an SSN) would likely cover payroll for a large proportion of small and medium-size business payment accounts. 

Such a calculation excludes other business expenses, which vary by business type, and ignores variation in monthly earnings.

Losses to deposits used for payments—or a delay in 

access to deposit funds—can abruptly debilitate daily 

operations.

Business payment accounts are not currently 

defined in the structure of the deposit insurance 

system but must be identifiable for the viability of 

Targeted Coverage. Practically, such accounts may 

be measurable by first distinguishing the identifier 

associated with the account: for example, using a tax 

identification number (TIN) or employer identification 

number (EIN) rather than a social security number 

(SSN). In addition, business payment accounts may 

be distinguished from other accounts using account 

features. For example, business payment accounts 

may be defined as those that are demandable and 

do not pay interest (or do not pay interest above 

some benchmark). In addition to creating a practical 

definition to identify business payment accounts, 

delineating between accounts eligible to receive 

higher coverage is a major challenge and discussed 

further below.137

There is also an argument to differentiate business 

payment accounts from other accounts from an 

efficiency perspective. It is likely that deposit accounts 

used for operational purposes are more difficult to 

maintain across multiple banks to obtain greater 

deposit insurance coverage. There are also likely large 

inefficiencies in managing daily inflows and outflows 

across multiple banks relative to accounts used 

for investment purposes. Thus, business payment 

accounts are least able to take advantage of insurance 

across banks in the current system.

The main challenges of Targeted Coverage are the 

practical considerations when defining account types 

that receive higher insurance coverage to ensure 

that the criteria for qualifying accounts are strictly 

defined and cannot be easily circumvented, especially 

given recent improvements in financial technology. 

For example, individuals, trusts, or estates may 
2023 Options for Deposit Insurance Reform | 47

exploit account definitions and adopt EINs or TINs to 

obtain higher coverage under Targeted Coverage. In 

addition, banks and depositors may find other ways to 

circumvent restrictions placed on accounts with higher 

coverage. For instance, a bank may offer accounts with 

no interest but where loyalty “points” can be accrued 

and redeemed for gift cards or even cash. Alternatively, 

or in conjunction, banks could offer lower loan rates 

to customers who have noninterest-bearing accounts. 

Banks will be incentivized to pursue these or other 

innovations to attract deposits. Given the rapid pace 

of financial and technological innovation, it may 

be challenging for regulators to stay ahead of new 

product offerings. 

Alternatively, banks may offer accounts with sweep 

arrangements in which deposits are regularly 

transferred from one type of account into another 

in ways intended to combine the advantages of 

investment-type accounts with the advantage of 

increased coverage of the transaction account. Deposit 

sweep arrangements may complicate failure resolution 

since failing banks may close either during regular 

business hours or at other times. Though banks may 

have to provide formal notice to depositors, depositors 

may not comprehend the implications of sweep 

programs. For example, some depositors may not read 

the relevant disclosure documents, or some may agree 

to sweep programs when opening an account and 

later forget. The increased complexity may cause some 

depositors to believe that they have higher insurance 

coverage in specific accounts when in fact they do not. 

Ultimately, the distinction between accounts with 

higher coverage and other account types should 

be based on criteria that are easily accessible and 

distinguishable between accounts, and that are 

clearly defined and disclosed in ways that depositors 

understand. Since large amounts of uninsured 

deposits may remain in banks under this option, it 

may be appropriate to consider other tools such as 

those in Section 5 to mitigate the risk of banks runs.

The separation of accounts by function—payments 

and investments—is a key concept of Targeted 

Coverage. Consequently, interest rate restrictions 

(as discussed in Section 3 and in Unlimited Coverage) 

on accounts with higher coverage may be an 

138Depositors excluded from TAG program coverage were primarily those holding higher interest-bearing accounts that appear more similar to investors than 

those using their accounts for ongoing operating expenses.

important consideration for implementation of 

Targeted Coverage. Similarly, large deposit accounts 

that are not eligible for higher coverage should have 

clear restrictions on withdrawals to maintain a clear 

separation of payments and investment functions. In 

delineating accounts, it is important that large deposit 

accounts do not simultaneously offer insurance 

coverage, liquidity, and high yield. 

The costs associated with conducting a deposit 

insurance determination associated with Targeted 

Coverage are similar to those for Limited Coverage 

or potentially higher, depending on how accounts 

are identified. For example, accounts receiving 

higher coverage may be viewed as an additional 

ownership right and capacity over which accounts 

must be aggregated before applying the deposit 

insurance coverage limit, which could complicate 

deposit insurance determinations. As discussed in 

Limited Coverage, deposit insurance simplification 

may provide additional benefits when considered in 

tandem with Targeted Coverage.

Financial Stability

Providing increased coverage to specific types of 

accounts has several advantages. First, it allows for 

a form of targeting, in which additional insurance 

is provided depending on the needs of customers 

and financial stability objectives, rather than being 

constrained to using only one limit to serve all account 

types. The original TAG program served the needs 

of businesses, nonprofit organizations, government 

municipalities, and other entities that needed ongoing 

use of large deposit amounts (e.g., for payroll).138

In serving these needs, the original TAG program 

increased financial stability overall and benefited the 

broader economy. 

The primary source of run risk that generates financial 

stability concerns is demandable deposits, especially 

those deposits used for operational purposes. 

Business payment deposits are less easily diversifiable 

across banks, and business accounts in this category 

may become very large. Providing greater or unlimited 

deposit insurance to business payment accounts 

provides the benefits of higher insurance without 

extending the guarantee to large depositors whose 

deposits are used for investment purposes.
48 | 2023 Options for Deposit Insurance Reform

Increasing coverage to large deposit accounts with the 

most demand for liquidity would reduce or eliminate 

the need for depositors of such accounts to withdraw 

their funds out of fear for the safety of their deposits 

and for the continuity of their operations. This 

would have benefits for financial stability, as these 

depositors are not expected to discipline risk-taking by 

demanding a higher return, but instead have a strong 

incentive to run in response to solvency concerns. 

Large investment-type deposits, which would remain 

uninsured, could still expose banks to risk of runs or 

periods of funding stress if these uninsured funds do 

not roll over when they mature. 

Like Limited Coverage, the financial stability benefits 

of Targeted Coverage relate to the amount of the 

increase in the deposit insurance limit, especially as 

it pertains to demandable accounts. If there remain 

large uninsured demandable accounts, additional 

tools to further promote financial stability should 

be considered. For example, large, partially covered, 

demandable accounts may need to be subject to 

other restrictions (such as collateralization or limits to 

liquidity or a limited draw schedule, discussed later in 

this section) that limit the associated run risk.

Moral Hazard, Market Discipline, and 

Depositor Discipline

The primary drawbacks to providing greater or 

unlimited coverage to specific account types are the 

potential loss in depositor discipline and resulting 

implications for bank risk-taking. With respect to 

depositor discipline, operational business depositors 

may be poorly situated to evaluate the risks on their 

bank’s balance sheet relative to investors, since the 

primary focus of the owner of a business payment 

account is running a business. By providing higher 

insurance coverage to these types of accounts, the 

deposit insurance system may reduce inefficiencies 

created by maintaining many business payment 

accounts across banks and benefit those for whom 

financial stability concerns are highest. Interest rate 

restrictions on accounts with higher coverage can 

also mitigate moral hazard concerns from increased 

deposit insurance.

With Targeted Coverage, one may conjecture that the 

loss in depositor discipline would occur for holders 

only of previously uninsured accounts that are now 

insured; however, the resulting loss to depositor 

discipline may apply more broadly. Beyond the 

standard tradeoffs involved in deposit insurance 

reform, there are unique advantages and challenges 

to implementing Targeted Coverage. 

Under Targeted Coverage, instead of running in 

response to bank solvency concerns, depositors may 

simply move their deposits to an account with higher 

coverage within the same bank, to the extent they are 

able. Consequently, depositor discipline is weakened 

because the deposits do not flee the bank. Though 

it weakens depositor discipline, the ability to obtain 

more insurance by moving deposits across accounts 

within the same bank may increase financial system 

stability. First, because deposits remain within the 

same bank, the bank is under less pressure to liquidate 

assets. Second, panic-driven runs are less likely if 

depositors can obtain greater insurance by switching 

account types or transferring funds to a different 

account within the same bank. Third, the movement 

of funds to more highly insured accounts can itself 

serve as an early-warning signal for bank supervisors, 

managers, and boards to rectify risky behavior that 

may drive a flight to safety of deposits within the bank. 

Broader Market Effects

Increasing or fully insuring only business payment 

accounts would limit disruptions to other asset 

markets that compete with deposits as investment 

vehicles. For example, absent a full insurance option 

on a business payment account at a single bank, a 

small or medium-size firm that needs liquidity to meet 

its day-to-day operations may allocate its funds across 

multiple banks and substitute products, weighing a 

combination of safety, convenience, and yield. Given 

the choice to keep its business payment accounts fully 

insured, the firm may willingly sacrifice yield, or may 

even pay a premium, to do so. In contrast, an investor 

seeking yield may find restrictions on business 

payment accounts (such as rate caps) insufficient to 

justify the benefit of insurance. Thus, to the extent that 

business payment accounts can be distinguished from 

investment accounts, Targeted Coverage may support 

banks in their essential role in the payment system 
2023 Options for Deposit Insurance Reform | 49

while minimizing the distorting effects that unlimited 

or increased deposit insurance may have relative to 

other assets. 

Consistency and Transparency

Targeted Coverage may increase complexity compared 

with other options for deposit insurance reform. Even 

in its most basic form—for example, with two types 

of accounts (qualifying vs. non-qualifying) and two 

different limits—differential insurance would naturally 

generate questions from depositors about the actual 

insurance limit on their accounts. Because the criteria 

for qualifying accounts would need to be detailed, 

many depositors might find the criteria difficult to 

understand. It would be important for banks to be 

transparent about the insurance limits and relevant 

account details, and new disclosure requirements 

may need to be considered. Banks may need to clearly 

and regularly specify to depositors the insurance limit 

associated with each account type (e.g., at account 

opening, on their account webpage, and on account 

statements).

Increased or unlimited deposit insurance for business 

payment accounts would reduce the role of perceived 

protection against uninsured depositor losses, 

providing greater consistency and transparency.

Fund Adequacy

Offering increased or unlimited insurance on only 

specific accounts would reduce the exposure of the 

FDIC in a failure, as compared with full insurance 

on all account types (holding constant the risk of 

bank failure), though this option would still entail a 

significant expansion of the DIF. The extent to which 

the DIF would need to expand would be a function of 

both how business payment accounts are defined and 

the extent to which the demand for business payment 

accounts results in inflows from other asset markets. 

Although assessments would likely need to increase, 

it is difficult to estimate to what extent. 

139Some organizations offer excess deposit insurance, but it is limited in scope, provides limited coverage, or the issuers retain the right to cancel, or all three. At 

least one such insurer abandoned offering coverage as the financial crisis took hold in 2008. The Deposit Insurance Fund in Massachusetts is a private, industrysponsored fund that provides excess insurance for all deposits above the FDIC coverage levels. Most member banks are either savings or cooperative banks. As 

of year-end 2022, member banks had approximately $77.8 billion in deposits, with insured excess deposits of $28.6 billion. The Massachusetts fund had a $487 

million fund balance. See https://www.difxs.com/DIF/Home.aspx.

Excess Deposit Insurance 

Coverage

In addition to changes in deposit insurance coverage, 

there are options that would address different aspects 

of the current deposit insurance system. These warrant 

consideration alongside the options for changes in 

deposit insurance coverage.

Excess deposit insurance, or voluntary coverage for 

deposits above the insurance limit, may be an option 

alongside changes to deposit insurance limits. In 

theory, optional coverage may be provided at the bank 

or depositor level, and may be provided by the private 

sector, by the FDIC, or by a combination.

To be credible, an insurer must have the funds to 

cover the loss event against which it is insuring. 

Excess deposit insurance would have to address the 

concentration of deposits in a single institution that is 

subject to a loss event, the correlation of loss events 

across small institutions associated with banking 

crises, and the combination of the two. Absent the 

federal government backstop, it seems unlikely that 

private insurers can address those risks sufficiently 

to provide enough coverage to significantly enhance 

financial stability. The existing private excess deposit 

insurance market is limited in scope and coverage 

and does not address the challenge of industry 

concentration of uninsured depositors in large 

institutions.139 In an optional excess deposit insurance 

program, banks or depositors who pose systemic 

risks for which the program is designed would need 

to opt in for the program to be effective. If large banks 

or depositors opt out, historical experience is that 

they may continue to expect support from future 

interventions but would not bear the associated costs. 

Coverage that is optional neither changes perceptions 

about future support nor does it impose a cost on 

those benefiting from those perceptions.
50 | 2023 Options for Deposit Insurance Reform

Accurate pricing of bank risk-taking for deposit 

insurance is already a challenge. Pricing excess deposit 

insurance would be an even larger challenge given 

the adverse selection problem: banks or depositors 

who opt into an excess deposit insurance system are 

likely to have different characteristics than banks 

or depositors who do not opt in. Fair pricing would 

require that the FDIC account for the decision to opt in, 

in addition to the typical challenges associated with 

pricing. 

Financial Stability

The effects of excess coverage on financial stability 

would depend upon the participation of uninsured 

depositors. If participation is sufficient and funds are 

available in a timely manner, excess deposit insurance 

would have significant stability benefits. If there is 

insufficient participation or payment on excess deposit 

insurance claims were delayed, however, excess 

deposit insurance would have limited impact on 

financial stability.

If excess deposit insurance were offered at the bank 

level, it is likely that banks most exposed to bank 

runs would opt in. Thus, voluntary participation has 

a beneficial aspect of encouraging the participation 

of banks for whom run risk is highest. Banks would 

have an incentive, however, to opt in when they are 

experiencing stress or are near failure. For a viable 

system, eligibility requirements to opt in would be 

necessary; if some banks are not eligible, they would 

still be exposed to runs and thereby affect financial 

stability.

Deposit insurance for an individual depositor at a 

bank reduces that depositor’s incentive to run and 

reduces run risk at that bank. Similarly, the decision 

of an individual bank to obtain excess deposit 

insurance coverage reduces the contagion risk within 

the banking system. When choosing a level of excess 

coverage, individual depositors and banks are likely to 

consider only the benefits of coverage to themselves 

and are unlikely to consider the benefits they bring to 

the system when opting in. Thus, the benefits to the 

system are likely higher under mandatory coverage 

relative to voluntary coverage. 

Moral Hazard, Market Discipline, and Depositor 

Discipline

The implications of excess deposit insurance on moral 

hazard, market discipline, and depositor discipline 

are ambiguous. Depositors who exhaust significant 

resources to monitor banks may find it preferable to 

obtain voluntary excess deposit insurance, if offered. 

If depositors who previously monitored the bank opt 

into voluntary coverage, excess deposit insurance 

would have significant effects on depositor discipline, 

with associated effects on moral hazard and bank 

risk-taking. But if the least resourced depositors who 

currently monitor less have strong preferences for 

insurance and are most likely to opt in, then the effects 

of excess deposit insurance coverage on risk-taking 

incentives would be smaller. 

So long as deposit insurance pricing does not perfectly 

account for the associated run risk, banks with 

the highest exposure to run risk have the greatest 

incentive to opt into bank-level voluntary deposit 

insurance. Therefore, moral hazard is also likely to 

increase for banks most prone to risk-taking in a banklevel voluntary deposit insurance system.

Tools such as deposit insurance pricing may be used 

alongside excess deposit insurance coverage to 

mitigate moral hazard. However, voluntary deposit 

insurance programs are subject to adverse selection 

problems that affect other insurance programs: the 

agents that opt into the insurance program are those 

for whom the expected benefits of insurance exceed 

the costs of participation. Fair risk-based pricing for 

deposit insurance is already a challenge, and adverse 

selection makes the challenge of fair pricing of 

voluntary deposit insurance even greater. 

Broader Market Effects

Voluntary excess deposit insurance is unlikely to have 

notable broader market effects. Especially for small 

banks, there already exist private excess deposit 

insurance programs for which deposit concentrations 

are not as significant of a concern as they are in the 

broader economy. It is unclear that broader market 

effects are significantly different in the presence of 

excess deposit insurance.
2023 Options for Deposit Insurance Reform | 51

Consistency and Transparency

Excess deposit insurance likely would not significantly 

improve the consistency and transparency of the 

deposit insurance system. Financial stability concerns 

would continue to motivate perceptions of future 

interventions of support. 

Fund Adequacy

If excess deposit insurance coverage were to be 

funded by the DIF, then banks that did not opt into the 

program would share the risk with those that opted 

in. Given its structure, an excess deposit insurance 

system would therefore likely be managed in parallel 

to the DIF and would not have direct implications for 

Fund adequacy. However, if a separate insurance fund 

is created for the program, then it would risk being 

underfunded.

In addition to adverse selection problems across 

banks, there is also an adverse selection problem 

across time that would inhibit the adequacy of an 

excess deposit insurance system. During periods 

of financial calm, the incentive to participate in a 

voluntary program are low when compared with 

periods of economic stress. An excess deposit 

insurance fund is likely to struggle to maintain 

adequacy to cover the difference in demand for 

deposit insurance over the financial cycle.

Additional Options

Under Limited Coverage and Targeted Coverage, 

large concentrations of uninsured depositors may 

remain. This section of the report considers two 

options that may complement those options to help 

achieve financial stability objectives in the current 

environment.

Require Secured Deposits for Large Uninsured 

Deposits 

Requiring that short-term liabilities are funded with 

short-term assets is a commonly proposed solution 

for solving the financial stability challenges associated 

with runnable liabilities. Backing short-term liabilities, 

such as deposits, with safe, short-term assets 

effectively separates the payment system and credit 

intermediation functions of banks. 

140 FDIC, Deposit Insurance for Accounts Held by Government Depositors, https://www.fdic.gov/deposit/deposits/factsheet.html.

Some specific segments of the deposit market already 

segment the payment system and intermediation 

functions of banks. Depending on state or federal 

law, otherwise uninsured deposits of state, county, 

or municipal governments, and their political 

subdivisions, are secured by collateral or assets of 

the bank.140 In the event of failure, the FDIC honors 

valid and enforceable collateralization agreements 

applicable under law. The value of the collateral, 

however, may not be sufficient to cover the uninsured 

amounts at par.

Although the tradeoff between stability and credit 

intermediation may not justify a collateralization 

requirement in general, for large uninsured deposits, 

the experience of public deposits suggests that 

there may be cases in which the public interest in 

financial stability outweighs the associated costs 

to credit intermediation. The challenges posed by 

concentrations of large deposits at large institutions 

suggest that for such depositors and institutions, 

mandating that uninsured deposits, or possibly those 

above some larger dollar threshold, be secured by safe 

assets merits consideration.

Among the benefits of collateralizing deposits for 

large depositors is that it decreases the depositor’s 

burden of monitoring. Rather than requiring 

depositors to understand bank financial statements 

and assess the riskiness of their portfolio, or make 

conjectures about the likelihood of a systemic risk 

determination, depositors need only to understand 

the evaluation of the specific, well-defined collateral 

backing their deposits. Such an expectation is the 

norm for custodians of funds at municipal, county, 

and state governments and can therefore be seen 

as a reasonable expectation for decision-makers at 

large firms. If secured depositors are more attuned to 

monitoring collateral, they may also impose increased 

haircuts, which may also serve as an early-warning 

signal to supervisors.

An additional benefit of secured deposits is that they 

allow private markets to price the risks associated with 

concentrated short-term liabilities. Banks that issue 

uninsured deposits would continue to provide liquidity 

but would expand their balance sheet, and would 

likely pass those costs to the large depositors. Doing 
52 | 2023 Options for Deposit Insurance Reform

so would discourage the largest depositors from cash 

hoarding, especially at a single financial institution, 

and would discourage large depositors from relying on 

market perceptions of support to earn yield: uninsured 

deposits used for investment rather than transaction 

services would likely benefit from investing directly in 

the desired collateral rather than through the costly 

expansion of bank balance sheets.

However, secured deposits likely would not entirely 

solve the problem of runs if an institution is suddenly 

revealed to be undercapitalized. As in repo markets 

in 2007–2008,141 short-term collateralized loans also 

may be subject to runs. Upon realizing that its financial 

institution may be undercapitalized, a secured 

depositor is likely to prefer withdrawal to recouping 

collateral in a resolution process and incurring the 

valuation risk associated with the collateral in a failure. 

From a competitive standpoint, the collateralization 

of deposit services for the largest depositors is likely 

to affect primarily large institutions that hold most 

of the uninsured deposits. Aggregate large bank 

credit supply could be curtailed relative to smaller 

institutions. Whether overall credit supply is reduced 

depends on the ability of smaller banks and nonbank 

financial intermediaries to meet the demand. From 

the perspective of deposit market competition, 

secured deposits are likely to make small banks 

less competitive for the largest uninsured deposits 

given their balance sheet capacity. However, small 

banks are already less competitive for uninsured 

depositors, especially the largest depositors who 

might be targeted by a collateralization requirement. 

Requiring collateral for large deposits also would 

limit the capacity of insured institutions to provide 

the deposits. Requiring the collateralization of large 

deposits may therefore lead to both reductions in 

credit supply and a reduced capacity of the system to 

meet the demand for large deposits. Although both 

outcomes are consequential, they may be the result 

of a current mispricing of the liquidity risk posed by 

large quantities of uninsured deposits due to market 

perceptions of support in crisis. 

141Gorton and Metrick (2012). 

142Existing tools limit convertibility for money market funds. For example, SEC Rule 2a-7 passed in 2014 allows a money market fund board to impose up to a 2 

percent liquidity fee during stress or temporarily suspend redemptions. See https://www.sec.gov/news/press-release/2014-143.

Mandating the collateralization of large uninsured 

deposits also could have broader market implications. 

Banks issuing uninsured deposits would have greater 

demand for safe, short-term assets, thereby driving up 

the price. Depositors may also find the newly priced 

deposits unattractive and migrate out of the banking 

system. Depending on where the large depositors 

migrate, the associated run risk may migrate with 

them without improving financial stability.

Secured deposits could also have implications for fund 

adequacy. While an increase in the deposit insurance 

limit increases insured deposits and the necessary size 

of the DIF, converting uninsured deposits into secured 

deposits would not directly affect the amount of 

insured deposits or the reserve ratio. However, secured 

deposits stand ahead of the FDIC in the priority of 

receivership claims, and so could increase losses to the 

DIF and uninsured depositors in resolution. 

Requiring collateral for uninsured depositors could 

apply to the entire class of uninsured deposits or for 

uninsured deposit accounts above some threshold, 

and could apply at the depositor or institution 

level. Requiring collateralization of some uninsured 

deposits also could be applied only to banks with 

material concentrations of uninsured deposits or other 

runnable liabilities. While the experience of public 

deposits is a natural starting point for operationalizing 

secured deposits, the costs and benefits of any 

mandate on collateral for uninsured deposits are 

complex and beyond the scope of this report.

Limit Convertibility of Deposits Above 

the Deposit Insurance Limit

One possibility to limit the extent to which a run by 

large depositors can inflict sudden damage to a bank 

and the broader economy is to limit the full liquidity 

of large, uninsured accounts.142 Placing constraints on 

the ability of large depositors to withdraw funds would 

be a variation of the bank suspensions that occurred 

in large numbers before the creation of the FDIC, but 

such constraints could be more tailored than those 

suspensions were. Such limitations could apply 
2023 Options for Deposit Insurance Reform | 53

to deposits above the deposit insurance limit, or at 

a considerably higher level. They could apply in the 

normal course of business, or banks could have the 

discretion to apply them in the face of financial stress; 

bank supervisors could also determine how to apply 

the limitations.

For example, deposit accounts above some threshold 

could be restricted from withdrawing more than 

some percentage of their account balance within a 

specified timeframe.143 Additional withdrawals would 

be allowed after the specified timeframe. Thus, the 

largest depositors would be restricted from liquidating 

their accounts on demand. Withdrawal requests that 

approach or exceed the threshold may then also 

serve as an early-warning signal for supervisors. In 

addition, large depositors would maintain some skinin-the-game following large withdrawals, suppressing 

incentives to incite further panic and maintaining an 

interest in the franchise value of a bank in resolution. 

In addition to reducing the ability of large depositors 

to run, limiting liquidity for the largest depositors 

may also induce these depositors to diversify funds 

more broadly across banks, thereby reducing their 

concentration at a single bank. A more diversified 

depositor base may then further contribute to 

financial stability.

143McCabe, Cipriani, Holscher, and Martin (2012) propose that a small fraction of each money market fund investor’s balance be demarcated to absorb loss, a 

“minimum balance at risk,” if the fund is liquidated.

Finally, limiting the liquidity of large uninsured 

deposits may increase the incentives of the largest 

depositors to exert market discipline in a manner 

that reduces bank risk-taking. A large depositor with 

concerns about bank solvency has an incentive to 

withdraw funds immediately. If the ability to withdraw 

funds is limited, large depositors are more likely to 

retain exposure to the bank in a failure. Consequently, 

incentives of the largest depositors may be more 

closely aligned with other debtholders and the 

resolution authority and may induce those depositors 

to discipline the bank in a way that does not threaten 

its value in a failure event. 

For mismanaged and undercapitalized banks, limiting 

the liquidity of the largest accounts is unlikely to 

prevent a bank failure. Instead, by slowing the run, 

the FDIC would have time to resolve the bank through 

an orderly resolution process, rather than through a 

costly bank run. Similarly, limiting withdrawals will 

not necessarily prevent the contagious spread of 

concerns about banks’ health. Knowing that large 

withdrawals are occurring at some banks may cause 

large depositors at other banks to do the same. But 

again, the limitations on withdrawals could greatly 

slow the speed with which liquidity issues can 

propagate, supporting financial stability and the 

orderly resolution of problems.
PAGE INTENTIONALLY LEFT BLANK
2023 Options for Deposit Insurance Reform | 55

Section 7: Conclusion

Deposit insurance reform merits consideration in 

the wake of bank runs in March 2023 and trends that 

may have increased the susceptibility of the system 

more broadly. This report assesses three options for 

deposit insurance reform, their efficacies to meet 

the objectives of deposit insurance in the current 

environment, their broader consequences, and tools 

that may be used along with each option to maximize 

their effectiveness. The primary options—ordered for 

expositional purposes only—are:

y Limited Coverage, maintaining the current system 

of deposit insurance and potentially increasing the 

deposit insurance limit;

y Unlimited Coverage, fully insuring all deposits; and

y Targeted Coverage, substantially increasing 

coverage to business payment accounts without 

significantly changing the limit for other deposits.

Financial stability is a primary objective of deposit 

insurance. Banks issue demandable deposits to fund 

long-term assets. When depositors withdraw their 

funds simultaneously, a bank may be forced to sell 

assets at a loss, leading to the bank’s failure. One 

bank’s failure may lead to contagion if depositors 

at other banks fear for their banks’ solvency and 

withdraw funds, resulting in cascading bank failures. 

Depositors who lose access to their funds in bank 

failures may be unable to pay bills coming due, 

resulting in financial stress to firms and households 

and depressing credit and economic activity. Deposit 

insurance reduces these risks.

In addition to financial stability, deposit insurance 

objectives include depositor protection, consistency 

and transparency, and minimization of disruptions 

from bank resolution. Protecting small depositors has 

been an objective of the deposit insurance system 

since its founding, and more than 99 percent of 

deposit accounts were under the deposit insurance 

limit as of December 2022. Finally, deposit insurance 

coverage affects the ability of the FDIC to resolve 

institutions efficiently. Thus, objectives of deposit 

insurance reform include the minimization of 

disruptions associated with resolution.

Deposit insurance is associated with other 

consequences for the banking and financial system 

beyond its objectives. Because deposit insurance 

protects depositors from the consequences of bank 

risk-taking, they are less likely to withdraw their funds 

from a bank with poor risk management, allowing 

risks to build up in the system. However, other 

creditors and shareholders may continue to play an 

important role in constraining bank risk-taking in the 

presence of deposit insurance. Deposit insurance can 

also affect competition between banks, competition 

between banks and nonbanks, markets for deposit 

substitute products, and bank funding choices. 

Although some consequences are not inherently 

problematic, the implications should be understood 

in the context of deposit insurance reform decisions. 

In addition, increases to deposit insurance coverage 

affect the adequacy of the DIF and would require 

increased assessments to the banking industry.

Existing and new tools can complement deposit 

insurance reform to maximize its effectiveness in 

meeting its objectives and minimizing consequences 

deemed undesirable. Bank safety-and-soundness 

regulation and supervision can, in principle, constrain 

bank risk-taking and reduce the likelihood of 

uninsured depositor runs. Deposit insurance pricing 

promotes Fund adequacy and the fair allocation of 

the cost of deposit insurance across banks; to some 

extent, it also influences bank risk-taking. Requiring 

collateralization of large, uninsured depositors may 

reduce run incentives and promote monitoring. 

Limiting the convertibility of large, uninsured deposits 

may also reduce bank runs. Each tool has strengths 

and weaknesses.
56 | 2023 Options for Deposit Insurance Reform

This report indicates that Targeted Coverage—

significantly increasing deposit insurance coverage to 

business payment accounts—is the most promising 

option to improve financial stability relative to its 

effects on bank risk-taking, bank funding, and broader 

markets. There are significant unresolved practical 

challenges to Targeted Coverage, however, including 

defining accounts for additional coverage and 

preventing depositors and banks from circumventing 

differences in coverage. Of the options considered, 

Unlimited Coverage provides the clearest solution 

to bank runs, at the expense of more significant 

implications for Fund adequacy and market 

disruptions, and the greatest potential of the options 

for increases in bank risk-taking. Limited Coverage fails 

to address the financial stability challenges associated 

with large concentrations of uninsured deposits but 

has the fewest implications for bank risk-taking and 

broader market disruptions. This report argues that 

Limited Coverage and Targeted Coverage may also 

benefit from simplification of the deposit insurance 

system but are unlikely to benefit from a voluntary 

excess deposit insurance system. The options and 

tools in this report may inform policies that can help 

the deposit insurance system best meet its objectives 

in the context of the current challenges.
2023 Options for Deposit Insurance Reform | 57

References

Acharya, Viral V., and Nada Mora. 2015. “A Crisis of Banks as Liquidity Providers.” Journal of Finance 70, 

no. 1: 1–43. https://doi.org/10.1111/jofi.12182.

Allen, Franklin, and Douglas Gale. 1994. “Limited Market Participation and Volatility of Asset Prices.” American 

Economic Review 84, no. 4: 933–955. https://www.jstor.org/stable/2118039.

Anginer, Deniz, Asli Demirgüç-Kunt, and Min Zhu. 2014. “How Does Deposit Insurance Affect Bank Risk? Evidence 

From the Recent Crisis.” Journal of Banking & Finance 48: 312–321. 

https://www.sciencedirect.com/science/article/pii/S0378426613003816.

Ashcraft, Adam, Morten L. Bech, and W. Scott Frame. 2010. “The Federal Home Loan Bank System: The Lender of 

Next-to-Last Resort?” Journal of Money, Credit, and Banking 42, no. 4: 551–583. 

https://doi.org/10.1111/j.1538-4616.2010.00299.x.

Bennett, Rosalind L., Vivian Hwa, and Myron L. Kwast. 2015. “Market Discipline by Bank Creditors During the 

2008–2010 Crisis.” Journal of Financial Stability 20: 51-69. https://doi.org/10.1016/j.jfs.2015.06.003. 

Berger, Allen N., and Rima Turk-Ariss. 2015. “Do Depositors Discipline Banks and Did Government Actions During 

the Recent Crisis Reduce This Discipline? An International Perspective.” Journal of Financial Services 

Research 48: 103–126. https://doi.org/10.1007/s10693-014-0205-7.

Bernanke, Ben S. 1983. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” 

American Economic Review 73, no. 3: 257–276. https://www.jstor.org/stable/1808111.

Blinder, Alan S. and Robert F. Wescott. 2001. “Reform of Deposit Insurance: A Report to the FDIC.” March 20. 

https://www.fdic.gov/deposit/insurance/initiative/reform.html.

Bliss, Robert, and Mark Flannery. 2002. “Market Discipline in the Governance of U.S. Bank Holding Companies: 

Monitoring vs. Influencing.” Review of Finance 6, no. 3: 361–396. 

https://doi.org/10.1023/A:1022021430852.

Bradley, Christine. 2000. “A Historical Perspective on Deposit Insurance Coverage.” FDIC Banking Review 2 no.2: 

1–25. https://www.fdic.gov/analysis/archived-research/banking-review/br2000v13n2.pdf.

Brown, Martin, Benjamin Guin, and Stefan Morkoetter. 2020. “Deposit Withdrawals From Distressed Banks: Client 

Relationships Matter.” Journal of Financial Stability 46: 1–19. https://doi.org/10.1016/j.jfs.2019.100707.

Brunnermeier, Markus K. 2009. “Deciphering the Liquidity and Credit Crunch 2007–2008.” Journal of Economic 

Perspectives 23, no. 1: 77–100. https://www.aeaweb.org/articles?id=10.1257/jep.23.1.77.

Calomiris, Charles W., and Gary Gorton. 1991. “The Origins of Banking Panics: Models, Facts, and Bank 

Regulation.” In Financial Markets and Financial Crises, R. Glenn Hubbard, ed., National Bureau of 

Economic Research: 109–174. 

https://www.nber.org/books-and-chapters/financial-markets-and-financial-crises/origins-bankingpanics-models-facts-and-bank-regulation.
58 | 2023 Options for Deposit Insurance Reform

Calomiris, Charles W., and Matthew Jaremski. 2019. “Stealing Deposits: Deposit Insurance, Risk-Taking, and the 

Removal of Market Discipline in Early 20th-Century Banks.” Journal of Finance 74 (2): 711–754. 

https://doi.org/10.1111/jofi.12753. 

Calomiris, Charles W. and Charles M. Kahn. 1991. “The Role of Demandable Debt in Structuring Optimal Banking 

Arrangements.” American Economic Review 81, no. 3: 497–513. https://www.jstor.org/stable/2006515.

Congressional Research Service. 2020. The CARES Act (P.L. 116-136): FDIC Bank Debt Authority. April 2. 

https://crsreports.congress.gov/product/pdf/IN/IN11307.

Cook, Timothy Q. 1978. “Regulation Q and the Behavior of Savings and Small Time Deposits at Commercial 

Banks and the Thrift Institutions.” Federal Reserve Bank of Richmond Economic Review. 

November/December: 14–28. 

https://www.richmondfed.org/publications/research/economic_review/1978/er640602.

Cookson, J. Anthony, Corbin Fox, Javier Gil-Bazo, Juan F. Imbet, Christoph Schiller. 2023. “Social Media as a Bank 

Run Catalyst.” http://dx.doi.org/10.2139/ssrn.4422754.

Cutura, Jannic Alexander. 2021. “Debt Holder Monitoring and Implicit Guarantees: Did the BRRD Improve Market 

Discipline?” Journal of Financial Stability 54: 100879. https://doi.org/10.1016/j.jfs.2021.100879.

Davenport, Andrew Mitsunori, and Kathleen Marie McDill. 2006. “The Depositor Behind the Discipline: 

A Micro-Level Case Study of Hamilton Bank.” Journal of Financial Services Research 30: 93–109. 

https://doi.org/10.1007/s10693-006-8741-4.

Demirgüç-Kunt, Asli, and Enrica Detragiache. 2002. “Does Deposit Insurance Increase Banking System Stability? 

An Empirical Investigation.” Journal of Monetary Economics 49, no. 7: 1373–1406. 

https://doi.org/10.1016/S0304-3932(02)00171-X.

Diamond, Douglas W. and Philip H. Dybvig. 1983. “Bank Runs, Deposit Insurance, and Liquidity.” Journal of 

Political Economy 91, no. 3: 401–419. https://doi.org/10.1086/261155.

Diamond, Douglas W., and Raghuram G. Rajan. 2011. “Fear of Fire Sales, Illiquidity Seeking, and Credit Freezes.” 

Quarterly Journal of Economics 126, no. 2: 557–591. https://doi.org/10.1093/qje/qjr012.

Edwards, Cheryl L. 1997. “Open Market Operations in the 1990s.” Federal Reserve Bulletin. 

https://www.federalreserve.gov/pubs/bulletin/1997/199711lead.pdf.

Egan, Mark, Ali Hortaçsu, and Gregor Matvos. 2017. “Deposit Competition and Financial Fragility: Evidence from 

the U.S. Banking Sector.” American Economic Review 107, no. 1: 169–216. 

https://dx.doi.org/10.1257/aer.20150342.

Ehrlich, Isaac, and Gary S. Becker. 1972. “Market Insurance, Self-Insurance, and Self-Protection.” Journal of 

Political Economy 80, no. 4: 623-648. https://www.jstor.org/stable/1829358.

Fama, Eugene F. 1985. “What’s Different About Banks?” Journal of Monetary Economics 15, no. 1: 29–39. 

https://doi.org/10.1016/0304-3932(85)90051-0. 
2023 Options for Deposit Insurance Reform | 59

Federal Deposit Insurance Corporation (FDIC). 2017. Crisis and Response: An FDIC History, 2008–2013. 

Washington, DC: FDIC. https://www.fdic.gov/bank/historical/crisis/.

Federal Deposit Insurance Corporation (FDIC). 2000. “Options Paper.” 

https://www.fdic.gov/deposit/insurance/optionpaper.pdf.

Federal Deposit Insurance Corporation (FDIC). 1997. History of the Eighties: Lessons for the Future, Volume 1, 

Chapter 13. Washington, DC: FDIC. https://www.fdic.gov/bank/historical/history/vol1.html. 

Federal Deposit Insurance Corporation (FDIC). 1998. Managing the Crisis: The FDIC and RTC Experience, 

1980-1994 – Volume 1: History. FDIC. https://www.fdic.gov/bank/historical/managing/.

Federal Deposit Insurance Corporation (FDIC). 1984. The First Fifty Years. 

https://www.fdic.gov/bank/historical/firstfifty/.

Flannery, Mark J., and Robert R. Bliss. 2019. “Market Discipline in Regulation: Pre and Post Crisis.” The Oxford 

Handbook of Banking (3rd ed.) 736–775. https://doi.org/10.1093/oxfordhb/9780198824633.013.24.

Garcia, Gillian G.H. 2000. Deposit Insurance: Actual and Good Practices. International Monetary Fund. 

Washington, DC. https://www.imf.org/external/pubs/nft/op/197/.

Garnett, Edward, LaVaughn Henry, Daniel Hoople, and Ashley Mihalik. 2020. “A History of Risk-Based Premiums 

at the FDIC.” FDIC Staff Studies 2020-01. https://www.fdic.gov/analysis/cfr/staff-studies/2020-01.pdf. 

Gilbert, R. Alton. 1986. “Requiem for Regulation Q: What It Did and Why It Passed Away.” Federal Reserve Bank of 

St. Louis Review 68, no. 2: 22–37. https://doi.org/10.20955/r.68.22-37.zge.

Goldstein, Itay, and Ady Pauzner. 2005. “Demand–Deposit Contracts and the Probability of Bank Runs.” Journal of 

Finance 60, no. 3: 1293–1327. https://doi.org/10.1111/j.1540-6261.2005.00762.x.

Gonzalez, Greg II. 2008. “Sweep Activity: Managing Bank Reserves in the Seventh District.” Chicago Fed Letter, 

no. 253. https://www.chicagofed.org/publications/chicago-fed-letter/2008/august-253.

Gorton, Gary. 1988. “Banking Panics and Business Cycles.” Oxford Economic Papers 40, no. 4: 751–781. 

https://doi.org/10.1093/oxfordjournals.oep.a041885.

Gorton, Gary, and Andrew Metrick. 2012. “Securitized Banking and the Run on Repo.” Journal of Financial 

Economics 104, no. 3: 425–451. https://doi.org/10.1016/j.jfineco.2011.03.016.

Gropp, Reint, and Jukka Vesala. 2004. “Deposit Insurance, Moral Hazard and Market Monitoring.” Review of 

Finance 8, no. 4: 571–602. https://doi.org/10.1093/rof/8.4.571.

Grossman, Richard. 1992. “Deposit Insurance, Regulation, and Moral Hazard in the Thrift Industry: Evidence from 

the 1930’s.” American Economic Review 82, no. 4: 800–821. https://www.jstor.org/stable/2117345.

Gueyie, Jean-Pierre, and Van Son Lai. 2003. “Bank Moral Hazard and the Introduction of Official Deposit 

Insurance in Canada.” International Review of Economics and Finance 12, no. 2: 247–273. 

https://doi.org/10.1016/S1059-0560(02)00106-5.
60 | 2023 Options for Deposit Insurance Reform

Hoggarth, Glenn, Jack Reidhill, and Peter J.N. Sinclair. 2004. “On the Resolution of Banking Crises: Theory and 

Evidence.” Bank of England Working Paper, no. 229, September 10. 

https://dx.doi.org/10.2139/ssrn.641287.

Hooks, Linda M., and Kenneth J. Robinson. 2002. ”Deposit Insurance and Moral Hazard: Evidence from Texas 

Banking in the 1920s.” Journal of Economic History 62, no. 3: 833–853. 

https://doi.org/10.1017/S0022050702001109.

Hovakimian, Armen, Edward J. Kane, and Luc Laeven. 2003. “How Country and Safety-Net Characteristics Affect 

Bank Risk-Shifting.” Journal of Financial Services Research 23: 177–204. 

https://doi.org/10.1023/A:1024699811875. 

Ioannidou, Vasso P., and María Fabiana Penas. 2010. “Deposit Insurance and Bank Risk-Taking: Evidence from 

Internal Loan Ratings.” Journal of Financial Intermediation 19, no. 1: 95–115. 

https://doi.org/10.1016/j.jfi.2009.01.002. 

Iyer, Rajkamal, Thais Lærkholm Jensen, Niels Johannesen, and Adam Sheridan. 2016. “The Run for Safety: 

Financial Fragility and Deposit Insurance.” EPRU Working Paper Series 1602. University of Copenhagen. 

https://ideas.repec.org/p/kud/epruwp/1602.html.

Iyer, Rajkamal, Thais Lærkholm Jensen, Niels Johannesen, and Adam Sheridan. 2019. “The Distortive Effects of 

Too Big to Fail: Evidence From the Danish Market for Retail Deposits.” The Review of Financial Studies 32, 

no. 12: 4653–4695. https://doi.org/10.1093/rfs/hhz037.

Iyer, Rajkamal, and Manju Puri. 2012. “Understanding Bank Runs: The Importance of Depositor-Bank 

Relationships and Networks.” American Economic Review 102, no. 4: 1414–1445. 

https://www.aeaweb.org/articles?id=10.1257/aer.102.4.1414.

Iyer, Rajkamal, Manju Puri, and Nicholas Ryan. 2016. “A Tale of Two Runs: Depositor Responses to Bank Solvency 

Risk,” Journal of Finance 71, no. 6: 2687–2726. https://doi.org/10.1111/jofi.12424.

Jacklin, Charles J., and Sudipto Bhattacharya. 1988. “Distinguishing Panics and Information-Based Bank Runs: 

Welfare and Policy Implications.” Journal of Political Economy 96, no. 3: 568–592. 

https://doi.org/10.1086/261552.

Jordan, John S. 2000. “Depositor Discipline at Failing Banks.” New England Economic Review

(March/April): 15–28. 

https://www.bostonfed.org/publications/new-england-economic-review/2000-issues/issue-marchapril-2000/depositor-discipline-at-failing-banks.aspx.

Kandrac, John, and Bernd Schlusche. 2021. “The Effect of Bank Supervision and Examination on Risk Taking: 

Evidence from a Natural Experiment.” The Review of Financial Studies 34, no. 6: 3181–3212. 

https://doi.org/10.1093/rfs/hhaa090.

Karas, Alexei, William Pyle, and Koen Schoors. 2013. “Deposit Insurance, Banking Crises, and Market Discipline: 

Evidence from a Natural Experiment on Deposit Flows and Rates.” Journal of Money, Credit and Banking 

45, no. 1: 179–200. https://doi.org/10.1111/j.1538-4616.2012.00566.x.
2023 Options for Deposit Insurance Reform | 61

Karels, Gordon V., and Christine A. McClatchey. 1999. “Deposit Insurance and Risk-Taking Behavior in the Credit 

Union Industry.” Journal of Banking & Finance 23, no. 1: 105–134. 

https://doi.org/10.1016/S0378-4266(98)00074-0. 

Kashyap, Anil K., Raghuram Rajan, and Jeremy C. Stein. 2002. “Banks as Liquidity Providers: An Explanation for 

the Coexistence of Lending and Deposit-Taking.” Journal of Finance 57, no. 1: 33–73. 

https://doi.org/10.1111/1540-6261.00415.

Lambert, Claudia, Felix Noth, and Ulrich Schüwer. 2017. “How Do Insured Deposits Affect Bank Risk? Evidence 

from the 2008 Emergency Economic Stabilization Act.” Journal of Financial Intermediation 29: 81–102. 

https://doi.org/10.1016/j.jfi.2015.07.001.

Maechler, Andrea M., and Kathleen M. McDill. 2006. “Dynamic Depositor Discipline in U.S. Banks.” Journal of 

Banking & Finance 30, no. 7: 1871–1898. https://doi.org/10.1016/j.jbankfin.2005.07.010.

Marino, James A., and Rosalind Bennett. 1999. “The Consequences of National Depositor Preference.” FDIC 

Banking Review 12, no. 2: 19–38. 

https://www.fdic.gov/analysis/archived-research/banking-review/9910.pdf.

Martin, Christopher, Manju Puri, and Alexander Ufier. Forthcoming. “Deposit Inflows and Outflows in Failing 

Banks: The Role of Deposit Insurance. Journal of Finance. 

https://www.fdic.gov/analysis/cfr/working-papers/2018/cfr-wp2018-02-update-2022-07.pdf.

Martinez Peria, Maria Soledad, and Sergio L. Schmukler. 2001. “Do Depositors Punish Banks for Bad Behavior? 

Market Discipline, Deposit Insurance, and Banking Crises.” The Journal of Finance 56, no. 3: 1029–1051. 

https://doi.org/10.1111/0022-1082.00354.

McCabe, Patrick E., Marco Cipriani, Michael Holscher, and Antoine Martin. 2012. “The Minimum Balance at Risk: 

A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds.” Finance and Economics 

Discussion Series no. 2012-47. https://www.federalreserve.gov/pubs/feds/2012/201247/index.html.

Murton, Arthur J. 1989. “Bank Intermediation, Bank Runs, and Deposit Insurance.” FDIC Banking Review 2, no. 1: 

1–10. https://www.fdic.gov/analysis/archived-research/banking-review/br1989vol2no1full.pdf.

Park, Sangkyun, and Stavros Peristiani. 1998. “Market Discipline by Thrift Depositors.” Journal of Money, 

Credit and Banking 30, no. 3: 347–364. https://doi.org/10.2307/2601105. 

Shibut, Lynn. 2002. “Should Bank Liability Structure Influence Deposit Insurance Pricing?” Working Paper 

2002-01. Federal Deposit Insurance Corporation. 

https://www.fdic.gov/bank/analytical/working/wp02-01.pdf.

Shleifer, Andrei, and Robert W. Vishny. 2011. “Fire Sales in Finance and Macroeconomics,” Journal of Economic 

Perspectives 25, no. 1: 29–48. https://www.aeaweb.org/articles?id=10.1257/jep.25.1.29.

Shoukry, George F. Forthcoming. “Insurance Pricing, Distortions, and Moral Hazard: Quasi-Experimental Evidence 

from Deposit Insurance.” Journal of Financial and Quantitative Analysis. 

https://doi.org/10.1017/S0022109022001491.
62 | 2023 Options for Deposit Insurance Reform

Sironi, Andrea. 2003. “Testing for Market Discipline in the European Banking Industry: Evidence from 

Subordinated Debt Issues.” Journal of Money, Credit and Banking 35, no. 3: 443–472. 

https://www.jstor.org/stable/3649840.

Tirole, Jean. 2011. “Illiquidity and All Its Friends.” Journal of Economic Literature, 49, no. 2: 287–325. 

https://www.jstor.org/stable/23071618.

Van Roosebeke, Bert, and Ryan Defina. 2022. “How Deposit Insurers Account for Inflation,” IADI Policy Brief, No. 7. 

https://www.iadi.org/en/assets/File/Papers/Policy%20BriefsPB%207%20How%20Deposit%20

Insurers%20Account%20for%20Inflation%20Public.pdf.

Wheelock, David C., and Paul W. Wilson. 1995. “Explaining Bank Failures: Deposit Insurance, Regulation, and 

Efficiency.” Review of Economics and Statistics 77, no. 4: 689–700. https://doi.org/10.2307/2109816.
PAGE INTENTIONALLY LEFT BLANK
PAGE INTENTIONALLY LEFT BLANK

FDIC-012-2023

PRESORTED 

STANDARD

MAIL

Postage &

Fees Paid

FDIC

Permit No. G-36

Federal Deposit Insurance Corporation

Washington, DC 20429-9990

OFFICIAL BUSINESS

PENALTY FOR PRIVATE USE, $300