Can someone split $1B across multiple FDIC-insured banks and live off the interest legally?

Not sure of US$ 1 Billion, but this practice is very much done. FBO (For Benefit Accounts) are created and are essentially exactly what you’ve said. There is a master account and all these sub-accounts under it, all topped up and insured to the tune of US$ 250,000.

The splitting is not that big of a deal. The interest is a whole different story. On a side note, if you had US$ 1 Billion there are other better options. The US Treasury bill at the time of this writing gives 1.49% and the T-bills are back by the full faith and credit of the US government (the same full faith and credit that the FDIC offers).

That’s $14.9 Million a year in interest earnings. A whole lot better than the $900,000 you had highlighted. Bonus: You don’t have to split anything.