The FDIC's 130bln insurance fund *currently* has enough resources to cover >$1tln of depositors if needed.

That's because the FDIC doesn't pay out depositors entirely. It only pays out the incremental amount needed to make a failed bank's depositors whole. Thread.

Lets get into a simple example to make this tangible. Banks today look something like this:

100 assets
90 deposits
10 equity

Let's take a simple example where a failed bank's assets aren't worth 100 as they are booked at par value but instead worth say 80 (big loss!).

80 assets
90 deposits
-10 equity

The gap needed to make the depositors whole is not 90 but instead 10. That's the difference between the assets and the liabilities of the bank. If the FDIC pays the 10, then the depositors are whole.

That means is that the insurance capital can support 10x the deposit base!

If we take these rough numbers (10:1 asset/deposit leverage) and assume that failed banks assets are worth 80c on the dollar, then the current 130bln stabilization fund could cover bank failures of *1.3tln of total assets*.

For context that would be 2x the value of all bank failures since 2000 before SVB.

It also represents about 20% of total small bank (below 25th largest) assets in the country, which are the banks most at risk right now.

That is a lot of firepower in the hopper even before taxing the banks to re-up in the insurance fund.

To give some perspective on that, the current fund of 130bln represents about 50% of banking system profits for 2022.

While equity holders would take a hit if banks had to pay in more, the banks have more than enough capital to pay out of their profits.

And finally worth noting that the sheer existence of the guarantee of deposits reduces the risk that there is a bank run, which reduces the risk that there is a failure, which reduces the risk of asset sales at 80c, which reduces the risk the fund is needed.

That's the beautiful about a guarantee, is it improves the credit risk and doesn't cost anything to implement.

Put together this highlights that despite all the concerned takes out there, the system is pretty well prepared to handle a lot of bank failures without requiring a big hit to taxpayers or QE.

I know this "its gonna be ok" take probably wont generate clicks, but its the reality.