Some of you probably already knew this, but today I learned the reason for SVB and Signature Bank's failures was because they refused to participate in reciprocal deposit networks to ensure deposits in excess of $250k were FDIC insured.

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The federal government only insures up to $250k per customer per bank. The expectation is that if you have excess of that, you need to distribute it across multiple banks. There are services that let banks do this for their customers seamlessly though. So the customer deposits $10 million and it gets distributed to 39 other banks and each part is insured. The customer always just sees their balance as if it’s all at the original bank

Wait, if I understand english correctly, it means if some deposits more that $250k into their accounts, it's not insured??. 
Why is that "normal". I would think there are regulations that ensure money in commercial banks are always insured ( I assume I'm missing something here )

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I don't have any proof, but my impression at the time was that they were sort of left out of the reciprocal club because they allowed these "sketchier" activities

(I briefly worked with Signature on a crypto escrow product in 2018/19)

Yep! But the silly thing is they could have done all this AND maintains a sweeps network that allowed every depositor to maintain FDIC insurance. If they needed money to fund other services, they would have been able to receive reciprocal deposits from other institutions to fund those activities.

Crazy right? Also part of why they were able to lean into more innovative segments (startups, crypto, etc)

Signature had it's own blockchain at one point ("SigNet" I believe)

Still think everyone involved with the SVB fiasco should have lost their money beyond the FDIC limit

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The average individual doesn't carry more than $250k in a bank account.

Everyone who would have been effected was a business or a high net worth individual that was taking advantage of the risk for the upside and didn't have to pay for the downside.

These people have CFOs or money managers.

They got caught with their pants down.

The problem with this is that the people parking their money at these banks may have known the risk, but the banks DEFINITELY knew. They just thought that there wouldn't ever be an issue.

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