Why doesn't FDIC insurance rise with inflation?

Question

Let's face it, $100,000 isn't going to last as long as it used to.

Answer 1

If you really want to put more than $100,000 in one account, you can work with your financial institution to purchase excess insurance above the FDIC guarantee.
Every financial institution is required to carry a crime policy covering their employees in case an employee embezzles money from them. The theory is that the insurance will off set any amount they steal and make the institution whole (which it does). Some of the insurance companies that write this type of risk also write an additional policy that will cover the institutions large depositors. They will specifically schedule each depositor on the policy indicating the deposit amounts in excess of the FDIC. If the depositor is important to the institution (and I am guessing the excess $100,000 deposits means they are), the bank will take on the insurance premium on behalf of their customers.

Answer 2

The insurance limits do rise. My first job was as a bank teller. The limits on FDIC insurance were $10,000 in 1972. The limits have not gone up as fast as inflation, but there are no signs that the "low" limit of insurance is causing any problems in the banking system or in the economy.

If a high-net worth individual has a need for a current cash position greater than $100,000, there are several well-known tools to solve the problem. Let's assume we have a husband, wife and two children. Accounts can be opened as follows:

Husband individually
Wife individually
Husband as trustee under trust agreement for Child #1
Wife as trustee under trust agreement for Child #1
Husband as trustee under trust agreement for Child #2
Wife as trustee under trust agreement for Child #2
Husband "in trust for" wife
Husband "in trust for" child 1
Husband "in trust for" child2
Wife "in trust for" husband
Wife "in trust for" child 1
Wife "in trust for" child2
Husband as trustee under trust agreement for wife
Wife as trustee under trust agreement for husband

That's $1.4MM of deposit insurance.

Frankly, I think that anyone whose operations call for holding over a million in demand deposits IN ONE BANK should have their own financial risk-management based solutions to the risk of bank failures, and not call upon the taxpayers to underwrite the wealthy's choice of exotic banks that a prudent person would not touch with a ten-foot pole. I recognize that there are countervailing advantages, because the FDIC's operations are tightly integrated with anti-money-laundering systems, so there are advantages in making sure that insurance of accounts makes a difference to enough people that they keep there money in places where Uncle Sam can keep an eye on it. We don't hear the financial enforcers (FBI, Treasury, OCC) screaming for stemming the flow of money through uninsured/nonreporting banks, because anything substantial moving on those channels gets sniffed to see who's paying whom.

Ultimately, if the amount of insurance increases, so will the premiums for that insurance. Every dollar that goes into paying premiums for deposit insurance is one less dollar that the bank can lend and develop economic growth. So there's not much need to index insurance and increasing insurance has comparative disadvantages.

Answer 3

I agree. Just make sure you don't have more than $100,000 in each bank so you are covered. That is not a problem for me! Wish it was............

Answer 4

that is becase nobody wants to guarentee very high amounts.