The US Federal Deposit Insurance Corporation has recommended a change to its arrangements, so that in addition to the current US$250,000 deposit insurance limit there would be a much bigger coverage limit for business accounts. In a report released this week, Options for Deposit Insurance Reform, the FDIC says uninsured depositor runs triggered the failures of both Silicon Valley Bank and Signature Bank in March 2023. It argues that extending deposit insurance to business payment accounts may have relatively large financial stability benefits, with fewer costs to moral hazard relative to increasing the limit for all accounts. The FDIC says: “Providing increased coverage to specific types of accounts has several advantages. It allows for a form of targeting n which additional insurance is provided depending on the needs of customers and financial stability objectives, rather than being constrained to using only one limit to serve all account types. “Business payment deposits are less easily diversifiable across banks and business accounts in this category may become very large.” And it says “potential complementary tools” that might accompany such a change include interest rate restrictions on accounts for which additional coverage is extended, and limits on convertibility for large accounts that remain partially insured. Australia’s Financial Claims Scheme provides a government guarantee on deposits up to $250,000. Any changes to FDIC arrangements may be considered by government and regulators here. The FDIC has played a key role in the resolution of Silicon Valley Bank and Signature Bank, which both failed in March. It was appointed receiver of both banks and was allowed to use emergency powers to fully protect depositors in winding them down. It also arranged the sale of the SVB and Signature “bridge” banks, which were set up under FDIC supervision to continue serving customers. The FDIC says that at December 2022, more than 99 per cent of deposit accounts were under the $250,000 deposit insurance limit. However, the proportion of uninsured deposits in the US banking system is above 40 per cent. The value of uninsured deposits in the banking system has grown substantially over the past decade, particularly among large banks. “Growing concentrations of uninsured deposits at large banks make the banking system potentially more vulnerable to depositor runs, such as those of March 2023,” the FDIC says. Like other regulators, it is concerned at “the speed with which information, or disinformation, is disseminated and the speed with which depositors can withdraw funds in response to information may constitute to faster and more costly bank runs”. Changes to regulations are called for because “the spread of information and the ability of depositors to transfer funds overnight and on weekends may make it more challenging to promptly intervene in a bank run.” “An increase in deposit insurance coverage, by expanding the share of insured bank funding, may reduce the degree of funding stress banks face during a crisis and lessen their reliance on emergency sources of funding.” Limiting the convertibility (restricting full liquidity) of large uninsured deposits would restrict the capacity of depositors to run and may improve depositor stability in a manner that