When the pickings get slim are you exceeding the FDIC limit at institutions such as Chase, Bank of America, Navy Federal and the like or, to stay within FDIC limits, are you putting money at lesser known smaller financial institutions that are under $1 billion and have the equivalent of a C safety rating? This has been an ongoing issue but there seem to be fewer obvious choices. On one side if banks such as Chase or Bank of America have financial problems they could legally confiscate depositors' funds in excess of FDIC insurance to use as capital. But if Chase or Bank of America have those kinds of financial problems there's more to be concerned about other than personal deposits. However if staying within FDIC limits is still a priority do you take the risk with smaller institutions that have a mediocre safety rating? No one wants to deal with the FDIC if a bank failure arises. Additionally, the more your information is out there the greater the likelihood of security issues. How do you mimimize these issues? Where do you draw the line? Where is your comfort zone?
Answers
There is a point to be made - If TBTF banks fail there is more to be concerned with than your personal finances. You're also taking chances when you provide your personal info to numerous institutions, not to mention the headaches and time involved in managing many banks and credit unions. Maintaining longterm relationships with larger (and smaller) banks can prove beneficial. For these reasons and the perception that you have a greater chance of experiencing less than favorable situations with a smaller bank as opposed to a larger bank or credit union can influence your choice. It goes without saying that you are typically sacrificing substantial yield.
On the flip side as Ally and 49ers say --Why chance it? Some uninsured depositors (creditors) of failed institutions have been lucky thus far. However, unless I have missed something, which is possible, the ability of large financial institutions (including TBTF banks) to use uninsured depositors' money in recapitalization remains in place in 2025 through bail-ins and resolution plans. Although all measures will be used to find another bank or prevent depositor loss under a failed bank scenario, uninsured depositors may still face potential losses in the event of a large bank failure. Even if a bank can be resolved through asset sales uninsured depositors may not have 100% of their funds returned. Regulators would certainly try to minimize disruptions to the broader financial system, so they could decide to intervene and FDIC,or whoever, could decide to return all deposits (insured and uninsured) but they are not required to do so. The specifics of what FDIC may look like in the future is a hot topic of discussion.
Ultimately the potential for loss may or may not be mimimal but it does exist.
So why exceed FDIC or NCUA insurance unless you determine the covenience and perceived safety and security of any institution, large or small, is worth it?
Secondly, Countless businesses and lots of people exceed FDIC limits by far at the top 5 banks, such as Chase, BofA, Wells, etc., figuring they are too big too fail. It would often be impractical for businesses to spread out their cash at so many multiple banks in an effort to stay at FDIC limits. As was mentioned, if any of the 5 major banks were to fail where the countless amount of uninsured money were to be lost, it would have a devastating effect beyond just that bank failing, etc. Thus, I feel safe exceeding FDIC limits at the big banks.
It was not the gov who saved the last 3 banks that failed. Jamie Dimon and others made a deal that the top 10 banks and several others are paying extra premiums to pay the gov back for the money they would not cover and most of them got the deposits and loans from the 3 banks. And the deal was all of those banks would pay more FDIC insurance premiums until that the money was paid back.
What happens when there is no one to pay for the deposit and loans if something happens to the big banks? Don't feel to safe. Part of the deal was the 1,250,000 limit for insurance for banks that took affect last April 1, and will in a while be the same limit for credit unions.
Guess you haven't heard that the guy in DC say that he wants to renegotiate our debt and with the foreign countries to make the 30 years bonds into 50 yr bonds.
What is is until it isn't.
Use Edie. It will tell you. When you add enough beneficiaries you are covered