Systemic Risk Exception

The FDIC is now effectively ensuring ALL bank deposits for all depositors, no matter how much money they have in their accounts.

The statement from the regulators was issued to announce a new emergency program to protect depositors of failing banks. They explained that they would make a “systemic risk exception” for both Signature and Silicon Valley Bank (SVB), a tech and start-up focused lender that was shut down following a bank run last week, allowing the clients of both banks to have full access to their deposits.

“[SVB] depositors will have access to all of their money starting Monday, March 13… We are announcing a similar systemic risk exception for Signature Bank… all depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the regulators said, adding that they would use the FDIC’s deposit insurance fund to fully protect all depositors, both insured and uninsured.

The deposit guarantee was raised from $40,000 to $100,000 in 1980 and from $100,000 to $250,000 in 2008. This “new emergency program” is not really new, as despite the initially responsible statements by Yellen and the Federal Reserve, plans to implement the no-limit program have been in place since at least 2020:

The FDIC radically increased account protections from $100,000 to $250,000 for a temporary period; eventually, the $250,000 protection level became standard. Now, the revised level is expected to greatly surpass the $250,000 protection mark, though it’s unclear how much the increase will be. It’s also unclear what additional protections and safeguards are being considered. Another source tied into the U.S. banking sector said to expect a “drastic increase” designed to calm any run on the banks and general banking jitters. It was also noted that one possibility would be a no-limit FDIC protection plan, at least temporarily.

FDIC Planning to Increase Deposit Insurance Protection Beyond $250,000, 26 March 2020

Now the protection level has been made de facto limitless, which means that the next series of failures will threaten the collapse of the entire system. This is the fundamental problem with centralization, as it removes the protective limits of decentralization in a foolish, and inevitably futile, attempt to avoid the consequences of limited failure. Combine a) this increased centralization, with b) the $620 billion in unrealized losses that the US banks had not yet accounted for at the end of 2022, and c) the fact that the current zero-reserve banking system is a literal Ponzi scheme with the Fed desperately trying to make depositors whole each time a bank can’t keep up with its outstanding loans, and systemic failure is inevitable.