Silicon Valley Bank and Signature Bank – Massachusetts depositors have more options

David K. Moynihan
Director, Real Estate Department
Published: McLane Middleton
March 14, 2023

The regulatory seizure of Silicon Valley Bank and Signature Bank understandably caused significant concern that depositors’ funds would not be paid.

Why the panic?  Because deposits of more than $250,000 are not covered by FDIC insurance.  The Federal Deposit Insurance Corporation, a federal entity created by the Banking Act of 1933, established FDIC insurance coverage to cover deposits up to the current $250,000 threshold.  While generally widely known, depositors at Massachusetts-chartered savings banks are covered over the FDIC limit in full.  Yes, in full.

This coverage is known as the Depositors Insurance Fund or DIF coverage.  Quoting from the Depositors Insurance Fund’s website:

The DIF is a private, industry-sponsored insurance fund that insures all deposits above Federal Deposit Insurance Corporation (FDIC) limits at our member banks. The DIF has been insuring deposits since 1934.

All DIF member banks are also members of the FDIC. Each depositor is insured by the FDIC to at least $250,000. All deposits above the FDIC insurance amount are insured by the Depositors Insurance Fund (DIF).

The combination of FDIC and DIF insurance provides customers of our member banks with full deposit insurance on all their deposit accounts. No depositor has ever lost a penny in a bank insured by both the FDIC and the DIF.

There are more than 70 Massachusetts-chartered savings banks providing depositors with 100% coverage of their deposits.  Thus, depositors with savings exceeding the $250,000 FDIC limit might consider moving funds to one of the many local savings banks if you want full coverage.

In addition to opening an account with a DIF member bank, another option is a Certificate of Deposit Account Registry Service (CDARS) account at one bank.  Your large deposit is divided into smaller amounts and deposited as Certificates of Deposits (CDs) with other banks that are members of the CDARS Network in amounts under the FDIC insurance limit.  Each CD is then eligible for FDIC protection.  The convenience of a CDARS account is working with one bank rather than multiple banks to maintain deposits below the FDIC limit.  The disadvantage of a CDARS account is the same as with any certificate of deposit.

As illustrated above, depositors have options rather than becoming panicked and causing a “run” on the bank famously described by the actor Jimmy Stewart in “It’s a Wonderful Life.”