@MadMadMadMadRN @ddayen deposit splitting by firms individually and concentration of deposits overall are largely independent. Imagine 3 banks, 3 firms. Without deposit splitting, each firm keeps all of its funds in a different one of the three banks. With deposit splitting, each firm keeps 1/3 of their deposits in each of the three banks. The distribution of aggregate deposits is exactly the same. 1/

@MadMadMadMadRN @ddayen I don’t think that, from FDIC’s perspective, deposit splitting is something they encourage because they see a financial stability benefit. It’s an accident of how FDIC was structured, insuring institutions not depositors, but up to a limit of X per customer. 2/

@MadMadMadMadRN @ddayen (Because “customers” desire it and people with money have influence in politics, “customer” gets defined very generously, so you can double your insuredness AT THE SAME BANK by making a trust for yourself, or opening a joint account with your spouse. The whole mechanism is accidental and idiosyncratically defined.) 3/

@MadMadMadMadRN @ddayen Deposits are incredibly concentrated in actual fact, at TBTF banks. Megafirms don’t split their billions into $250K/account. They bank with Chase or Citi. Eliminating with more assurance the deposit insurance limit allows smaller and regional banks to compete on a more equal basis with the “systematically important financial institutions”, making more likely actual deconcentration of deposits from TBTF banks. /fin

@MadMadMadMadRN @ddayen (i wasn’t suggesting FDIC thinks bank failures are independent. i was suggesting people who think per firm deposit splitting might would increase financial stability might have that intuition. i don’t think FDIC has any interest whatsoever in encouraging deposit splitting, other than as an accident of how they are structured. i don’t think they think the practice contributes to financial stability.)