Uninsured Deposits

Uninsured deposits are bank deposits that are not protected by a deposit insurance scheme. Most are simply the part of a depositor's balance above the coverage limit, such as the amount above 250,000 dollars per depositor, per bank, per ownership category in the United States, as of November 2026. Others fall outside the scheme altogether, for example deposits of other banks or, in many countries, of large financial institutions.

Because their holders could lose money if the bank fails, uninsured deposits are watched closely by supervisors and analysts as a measure of run risk. They are concentrated among businesses, public bodies and wealthy individuals, and therefore overlap heavily with wholesale deposits. The rapid withdrawal of uninsured deposits caused the collapse of Silicon Valley Bank and Signature Bank in March 2023 and prompted a debate on whether insurance limits should change.

Imagine an umbrella that only covers the first part of what you carry. Anything that sticks out beyond the edge gets wet when it rains. If you are carrying a lot, you are far more nervous about the weather than someone carrying a small bag.

Deposit insurance is the umbrella. Ordinary savers usually fit underneath it, so they have little reason to rush to the bank when there is bad news. Companies with millions in a single account do not fit, so at the first sign of trouble they are the ones most likely to move their money.

A common measure is the uninsured deposit ratio:

Estimated uninsured deposits are the balances above the insured limit, summed across depositors, plus deposits outside the scheme. If a bank has 40 billion dollars of deposits and estimates that 14 billion dollars exceed the coverage limit, its ratio is 14 ÷ 40 × 100 = 35 per cent. US banks above a size threshold report estimated uninsured deposits in their quarterly regulatory reports, though the figures are estimates because banks may not know every customer's holdings across ownership categories.

An uninsured depositor faces a one-sided bet: if the bank survives, staying earns a small return; if it fails, the depositor may lose part of the balance and wait months for recovery. Even a small chance of failure can therefore justify withdrawing, and because each depositor knows others are thinking the same way, withdrawals can feed on themselves, the classic logic of a bank run. Concentration makes this worse: if many uninsured depositors share an industry, advisers or social networks, they can move together. Digital banking means they can do so within hours.

At the end of 2022, more than 90 per cent of Silicon Valley Bank's domestic deposits were uninsured, much of it from venture-backed technology companies. After the bank announced a loss on securities sales and a plan to raise capital on 8 March 2023, depositors withdrew about 42 billion dollars the next day, and the bank was closed on 10 March. Signature Bank, also heavily reliant on uninsured deposits, was closed two days later. Fearing contagion, US authorities invoked a systemic risk exception to protect all depositors at both banks, with the cost recovered by a special assessment on banks through the Deposit Insurance Fund. The episode showed how quickly concentrated uninsured funding can leave and how it interacts with interest rate risk in the bank's assets.

In a US bank failure without special measures, uninsured depositors receive a claim on the receivership and are paid from the proceeds of the bank's assets. Under US depositor preference rules, deposit claims rank ahead of general unsecured creditors, so recoveries are often substantial, but not guaranteed. In the European Union, eligible deposits of individuals and small firms above the limit also rank ahead of ordinary unsecured debt, which reduces their exposure to bail-in. Large depositors manage the risk by spreading money across banks, using deposit sweep and reciprocal deposit networks that keep each slice insured, investing in treasury bills or money market funds, or requiring collateral, as many public bodies do.

After the 2023 failures, the FDIC published options for reform, ranging from keeping limited coverage, to unlimited coverage, to targeted higher coverage for business payment accounts. Supporters of higher limits argue that businesses cannot practically split payroll accounts across many banks and that the implicit guarantee shown in 2023 should be made explicit and paid for. Opponents warn of moral hazard and higher costs for banks. Supervisors have meanwhile increased scrutiny of banks with high uninsured ratios and of their liquidity risk management.

• Federal Deposit Insurance Corporation