As evidenced by the speech that the FDIC Chair, Martin Gruenberg, delivered at a conference yesterday, the FDIC is very much aware that both the level of uninsured deposits and the concentration of those uninsured deposits among a handful of mega banks is a serious problem for the U.S. banking system. Gruenberg didn’t name names, but we will do that in this article.
Gruenberg pointed out in his speech that year-end data for the three banks that failed this past spring indicated that anywhere from 90 percent to 70 percent of their deposits were uninsured. (During a banking panic, uninsured deposits are typically those that head for the exits at the fastest clip.)
But those three failed banks (Silicon Valley Bank, Signature Bank and First Republic Bank) were minnows compared to the asset-size of the banking whales which now account for the lion’s share of uninsured deposits in the U.S. banking system.
According to the FDIC, as of June 30 there were 4,645 federally-insured commercial banks and savings associations in the United States. Uninsured deposits at all 4,645 institutions totaled $7.134 trillion at the end of the second quarter. But according to call reports filed by JPMorgan Chase Bank, Bank of America, Wells Fargo and Citigroup’s Citibank as of June 30, just those four banks accounted for $4.185 trillion of uninsured deposits, or 59 percent of all uninsured deposits at all 4,645 federally-insured institutions.
That is simply reckless and irresponsible concentration of risk in the U.S. banking system, tolerated by a dysfunctional regulatory system that has been captured by banks and their lobbyists.
And, the story goes downhill from there.
Citigroup’s Citibank, the bank that blew itself up in 2008 and received the largest taxpayer and Fed bailout in global banking history, indicates in its call report for June 30 that 85.5 percent of its $1.338 trillion in total deposits are uninsured. The breakdown is as follows: It has $548.33 billion in uninsured deposits in its domestic offices plus $595.4 billion in deposits in foreign offices. (The FDIC does not insure deposits on foreign soil.) Those two figures tally up to $1.144 trillion in deposits lacking FDIC insurance out of a total deposit base of $1.338 trillion.
The breakdown for the other three mega banks are as follows: 59 percent of JPMorgan Chase’s deposits lack FDIC insurance; 51 percent at Wells Fargo; and 49 percent at Bank of America.
Under federal statute, the deposits held by U.S. banks that are located on foreign soil are not insured by the FDIC. Depositors in the Cayman Islands’ branch of Silicon Valley Bank found that out the hard way when their deposits were seized by the FDIC earlier this year after the bank failed in March. Deposits in domestic bank offices in the U.S. that exceed $250,000 per depositor/per bank are also not insured by the FDIC.
This is clearly a mega bank problem and not a problem for the bulk of well-managed smaller banks in the U.S. As Gruenberg stated in his speech yesterday, “As of December 2022, more than 99 percent of deposit accounts were under the $250,000 deposit insurance limit.”
After Citigroup caused mass banking contagion with its derivatives and off-balance-sheet Structured Investment Vehicles (SIVs) in 2008, it was bailed out as follows: The U.S. Treasury injected $45 billion of taxpayer capital into Citigroup; there was a government guarantee of over $300 billion on certain of its assets; the FDIC provided a guarantee of $5.75 billion on its senior unsecured debt and $26 billion on its commercial paper and interbank deposits; and secret revolving loans from the Federal Reserve while Ben Bernanke was Chairman sluiced a cumulative $2.5 trillion in below-market-rate loans to Citigroup from December 2007 to the middle of 2010, according to an audit released by the Government Accountability Office in 2011.
