Webinar: Managing Risk with Enhanced FDIC Insurance
The full impact of the Silicon Valley Bank collapse and the domino effect it is having on other banks and the rest of the economy has yet to be fully seen. While the events of the last few weeks revealed some of the instability and fragility within the U.S. banking system, it also highlighted the urgent need for businesses and banks to mitigate risk and protect their cash.
The multiple bank failures are shining a light on the FDIC Deposit Insurance program, which was created in the aftermath of the Great Depression as a way to protect both consumers and restore credibility and legitimacy in the U.S. banking system. Almost a hundred years after its inception, FDIC insurance coverage is just as relevant now as it was in the 1930s. Banks and fintechs are able to leverage the program as a tool to create stability for themselves and their customers. In a recent webinar, Treasury Prime Vice President of Banking Jeff Nowicki and Chief Platform Officer Mark Vermeersch talk about how Treasury Prime’s new product, Enhanced FDIC Insurance — which is offered in collaboration with partner banks — can benefit banks and fintechs alike. Here is an overview.
Interested in learning more? Watch the webinar on demand.
What is Enhanced FDIC Insurance?
The federal government has a program in place called FDIC Deposit Insurance, which protects certain account deposits in the event of a bank failure. The FDIC insures up to $250,000 “per depositor, per insured bank, for each account ownership category,” according to the FDIC website. The program does not cover all accounts, products, and investments; you should reference the FDIC website to confirm what is insured.
However, sometimes businesses and people need to keep more than the insured amount in an account in order to meet various business needs. Several financial institutions, particularly smaller ones, have utilized deposit sweep networks to address these various issues. Instead of having deposits held in one bank, deposit sweep networks allow a customer’s deposits to be held across an entire network of FDIC-insured banks, which in turn increases FDIC insurance coverage.
Treasury Prime has integrated with leading deposit sweep networks to create Enhanced FDIC Insurance, so that embedded finance companies can also leverage those networks for greater stability, says Treasury Prime Chief Platform Officer Mark Vermeersch. Those companies can then pass that Enhanced FDIC Insurance coverage to their end users that are managed on the Treasury Prime ledger.
How does Enhanced FDIC Insurance work?
Enhanced FDIC Insurance allows clients to integrate with Treasury Prime’s network of banks and their deposit sweep networks, but most of the action occurs under the hood. The enhanced FDIC program is offered through a partner bank and accessed through Treasury Prime’s seamless APIs.
For example, say a fintech customer has $100 million in deposits. “Our APIs and the fintech’s user interface will still say $100 million, and they will still be able to interact with the account like they normally would,” explains Nowicki. “But on the back end, through accounting practices and money movement, our banks are able to spread that $100 million across X number of banks so you can increase FDIC insurance from $250,000 to $10 million, $50 million, $100 million, depending on the program that each bank is participating in.”
When signing up for Enhanced FDI Insurance, every end user will receive a deposit agreement to participate in the network. Depending on the network the end user participates in, they will receive a list of institutions their deposits will be spread to. The end user then has the option to opt out of their deposits getting swept into a particular institution.
What are the benefits of Enhanced FDIC Insurance?
In simple terms, Enhanced FDIC Insurance helps create safer banking ecosystem for banks and fintechs. Large deposit clients can be assured that they are protected from losing millions of dollars and suffering operational interruptions. In return, this creates a safer and more stable environment for banks, says Vermeersch.
Banks can also use this tool to strategically manage their balance sheets and concentration risks, adds Treasury Prime VP of Banking Jeff Nowicki.
“Finance teams across our bank network can choose to participate in certain parts of businesses, or choose not to, in some cases,” says Nowicki. “It all depends on each individual bank. their balance sheet makeup, and how they potentially want to offload some deposits.”