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Company Insuring Deposits Above FDIC Limits Is Ending Coverage


The company Kansas Bankers Surety, a subsidiary of Berkshire Hathaway, has stopped insuring bank deposits above the amount guaranteed by the FDIC. I was not aware of this private deposit insurance, but apparently KBS and other companies have been in this business. This Kansas City Start article describes how the business operated:
Banks buy coverage typically at the request of a larger depositor such as a business. Towle [Senior VP of KBS] said the banks paid for the coverage but it was up to the banks whether to recover the fee from the customer. Banks could do so by adjusting the interest rate the banks pay on the deposits, for example.

A Wall Street Journal article had reports that Warren Buffet may have ordered KBS to exit the private deposit insurance market. KBS might have lost money in the recent failure of Columbian Bank & Trust Company (see post). Towle did not confirm either reports. Nevertheless, there does seem to be worries about future bank failures.

This also shows the risk of private deposit insurance. Unlike FDIC insurance, private deposit insurance can be terminated. In this case, depositors shouldn't risk losing money if they don't ignore this change. According to the Kansas City Star article, KBS is sending cancellation notices directly to the depositors, and depositors will have 90 days before the coverage ends. So depositors should be able to move funds or find other insurance alternatives.

Thanks to the reader who emailed me news of this.

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Anonymous   |     |   Comment #1
Metropolitan Bank still insures deposits upto $50 Million.

Banking Guy
Banking Guy   |     |   Comment #2
CDARS is a little different. The service splits deposits to under $100K in several FDIC-insured banks in the CDARS network.
Anonymous   |     |   Comment #3
Think ol' Warren Buffet knows something the FDIC isn't talking about?