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