Could the US Really Guarantee All Bank Deposits?

A once-unthinkable measure is being floated in Washington’s corridors of power as a possible way to ease the strains suddenly bearing down on small and regional US banks. Normally, the Federal Deposit Insurance Corp. guarantees bank deposits up to $250,000, a limit high enough to make most bank customers sleep easily at night. But recent stresses in the banking industry have put a temporary increase of the cap, or scrapping it, on the table.

The goal of federal insurance is to boost confidence in the US banking system without guaranteeing every penny deposited in banks — almost $18 trillion currently. First implemented in 1934 in response to a bank panic the year prior, federal deposit insurance began with a cap of $2,500, equivalent to about $56,00O today. It was “an immediate success in restoring public confidence and stability to the banking system,” according to the FDIC. The cap on insured deposits has been raised seven times, most recently in 2008 to its current $250,000.