Dem Rep. Sherman: FDIC Insurance Used to Backstop SVB Depositors Is ‘Not Free’ and ‘Cost Is Passed on to the Depositor’

On Friday’s broadcast of Bloomberg’s “Balance of Power,” Rep. Brad Sherman (D-CA) stated that the FDIC insurance that was used to backstop depositors at Silicon Valley Bank (SVB) and that federal officials have said could be used in the future to backstop depositors “is not free” and “Ultimately, that cost is passed on to the depositor.”

Sherman said that he supports increasing the deposit insurance limit, and “If you’re using the bank as a utility, as a system to pay your bills, then you shouldn’t have to check to see whether that bank is strong or very strong, you should be able to use it as a utility. A million or even higher might be in order. Whereas, if you’re making a million-dollar investment, there’s some onus on you to determine that you’re investing in a sound bank.”

He continued, “The other thing is that FDIC insurance is not free. Ultimately, that cost is passed on to the depositor. If you’re putting — giving your money to the bank on an interest-free basis in a non-interest-bearing account, there’s no way for them to lower the interest rate any lower and so depositors don’t suffer. On the other hand, if you impose this cost on people buying certificates of deposit or other investment accounts, then the bank is going to pass through the cost of the insurance and there’s going to be a real detriment to depositors.”

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