Dear Dr. Don,
Are there any banks that sell insurance to cover money over the $100,000 FDIC limit so that its customers will not take a loss?
— Gary Guaranty
I’ve seen credit unions offer private share insurance, called excess share insurance, over and above the coverage provided by the National Credit Union Share Insurance Fund. But previously, I wasn’t familiar with banks offering this type of coverage on commercial bank deposits.
That is, until I read the FDIC Quarterly article from 2007 that addressed this topic as it related to a potential FDIC role in the provision of excess deposit insurance.
Here are some excerpts from that report that relate to your question:
Examples of firms currently providing excess deposit insurance are BancInsure, St. Paul Travelers, and Kansas Bankers Surety Company. BancInsure provides risk management and risk mitigation services for community banks and other financial institutions and offers excess deposit insurance bonds to banks that are customers for the company’s other insurance products. St. Paul Travelers offers excess coverage through a depository bond, as does Kansas Bankers Surety Company, a subsidiary of Wesco Financial Corporation. Kansas Bankers Surety offers these bonds not only to banks in Kansas but to banks in many other states.
In addition, excess deposit insurance continues to be provided to state-chartered cooperatives and savings banks in Massachusetts by the Share Insurance Fund of the Co-Operative Central Bank (SIF) for cooperative banks and the Depositors Insurance Fund (DIF) for savings banks. The SIF and DIF are private, industry-owned excess deposit insurance funds, and both are backed solely by their own assets. Neither the Commonwealth of Massachusetts nor the U.S. government has any liability for these funds’ obligations. Both funds insure deposits above the FDIC limit, in full, dollar for dollar, without restriction.
In 2003, the FDIC responded to an inquiry from a deposit-placement service as to whether pass-through deposit insurance rules apply to funds placed with the service. The FDIC responded that deposit insurance would “pass through” from the agent (the deposit-placement service) to the owner of the funds provided that disclosure, record keeping, and other requirements were adhered to in the process. Deposit-placement services became an alternative for customers seeking deposit insurance coverage of funds in excess of the statutory limit.
The Certificate of Deposit Account Registry Service is one example of a deposit placement service. It allows depositors to have full FDIC insurance on deposits of up to $50 million through participating financial institutions. The Bankrate feature, “CDARS: Beat the $100,000 FDIC limit,” explains the service in greater depth.