Deposit guarantees are a type of insurance provided by governments or other entities to protect depositors in the event that a bank or financial institution fails. In the United States, the Federal Deposit Insurance Corporation (FDIC) is the primary agency that provides deposit insurance to banks and savings institutions. The FDIC provides deposit insurance up to $250,000 per depositor per institution, which means that if a bank fails, each depositor’s account is insured up to that amount.
In recent years, some banking giants outside of the US have expanded their own deposit guarantees in order to compete with US banks. For example, in 2017, the European Union (EU) expanded its deposit guarantee program, which provides deposit insurance for up to €100,000 (about $118,000) per depositor per institution. This was an increase from the previous limit of €50,000 per depositor per institution.
Similarly, in Australia, the government’s deposit guarantee scheme was increased from $250,000 to $1 million in 2020.
By expanding their deposit guarantees, these banking giants aim to attract customers who are concerned about the safety of their deposits. With larger deposit guarantees, customers can feel more confident that their money is safe and secure, even in the event of a bank failure. This can be especially important for customers who are considering opening accounts with foreign banks, where they may be less familiar with the local banking system and its regulations.
US Banking Deposit Guarantees
Actually, the opposite is true. It is banking giants outside of the United States that have expanded their deposit guarantees to compete with US banks, not the other way around.
The Federal Deposit Insurance Corporation (FDIC) in the US has been providing deposit insurance to banks and savings institutions for decades, and its deposit insurance limit of $250,000 per depositor per institution has been in place since 2008.
However, in recent years, some banking giants outside of the US have increased their deposit guarantees to provide more protection to their customers and compete with US banks. For example, the European Union (EU) increased its deposit guarantee program in 2017 to provide deposit insurance for up to €100,000 (about $118,000) per depositor per institution, which was double the previous limit. Australia also increased its deposit guarantee scheme from $250,000 to $1 million in 2020.
By offering larger deposit guarantees, these foreign banks aim to attract customers who are concerned about the safety of their deposits. With larger deposit guarantees, customers can feel more confident that their money is safe and secure, even in the event of a bank failure. This can be especially important for customers who are considering opening accounts with foreign banks, where they may be less familiar with the local banking system and its regulations.
Therefore, it is the competition from banking giants outside of the US that has driven the expansion of deposit , rather than US banks boosting their deposit guarantees to compete with these giants.
