Deposit Insurance

About Deposit Insurance

Deposit insurance was first introduced in the United States through the Federal Deposit Insurance Act of 1933, which created the FDIC. The initial coverage limit was 2,500 per depositor, raised gradually over decades. The limit was raised to 100,000 in 1980 and to 250,000 in 2008 during the financial crisis. Deposit insurance ended bank runs by insured depositors in the US. Over 140 countries have adopted deposit insurance. The EU requires all member states to maintain deposit insurance of at least 100,000 euros. Deposit insurance creates moral hazard by encouraging banks to take risks, as insured depositors do not monitor bank safety. The 2023 SVB failure demonstrated the limits of deposit insurance when businesses hold balances far above the cap.