> The current dollar value of the cap also makes sense.

How can a static number make sense given the existence of inflation? We've been told for the last year that inflation is "out of control," and yet in the case of the FDIC cap, $250K in 2012 dollars makes the same amount of sense as in 2023 dollars? To save anyone the work, $250K in 2012 is equivalent to $350K in today's dollars, so, a change of $100K, or 40%. Did TARP, which is repeatedly criticized for being passed too hastily, and also included this $250K cap, have secret future knowledge of interest rates and specifically intend for the cap to reduce in value by 40% over the following 10 years? The FDIC limit started at $2,500 in 1966 and has been increased several times. Have we magically arrived at the final number now?

> Deposit sweep accounts cover up to $3M (and diversify across banks, exactly the point of FDIC limits).

These numbers remain arbitrary. Your argument is only that there needs to exist an FDIC limit, not this particular limit. Why is $3M the right amount for sweep accounts? Saying "you can combine accounts to stack FDIC limits like video game power buffs" is true regardless of the base FDIC limit, it doesn't explain why this limit is correct, too high or too low. Look, it works for $50,000 too: "You can have deposit sweep accounts that cover up to $600K. Money market funds provide short term-term treasury bonds above that". And hey, it works for $500K: "You can have deposit sweep accounts that cover up to $6M. Money market funds provide short term-term treasury bonds above that". See, the surrounding multiplier system has nothing to do with justifying the base number. It seems much more likely that a number that was set 10 years ago when money was worth 40% more, and that has a history of needing to be raised, probably doesn't make sense today and needs another update.

> The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risky than banks with a large number of smaller uncorrelated depositors. Sweeping large deposits across banks and properly investing in treasuries reduces systemic risk and prevents bank runs in the first place. The de facto removal of FDIC caps defeats this diversification and protection.

If it is so critical to the integrity of the system, then why aren't accounts required by law to be sweeps above the FDIC limit, and not allowed past the "natural sweep multiplier FDIC limit" at all? You just said it yourself: the purpose is to reduce systemic risk. Then let's actually reduce it instead of "planting the seeds of reducing it if everyone gets sophisticated enough," and then getting angry when they fail to do it. The current system is like purposefully trying to create a tragedy of the commons, where individual mistakes are rarely very rarely punished but together contribute to bringing down the entire system. Allowing below FDIC limit accounts seems to be a weird landmine for both the depositor doing it, and for the larger system it operates in. It's the worst of both worlds. It's like when an API doesn't work, and instead of fixing the API, the author updates the documentation to include a workaround and is baffled why people keep running into this problem. Don't they read the docs? These uses are supposedly supposedly so smart but can't be bothered to find this simple workaround buried in my documentation?