Here’s why some people keep uninsured money in their bank

Recent troubles at mid-sized banks across the US have boiled down to one core issue: Uninsured depositors, afraid of losing everything, take their money and run at the first sign of trouble.

Wall Street is still getting over the trauma of last year’s regional banking crisis. Somehow, the same issue plaguing last year’s failed banks is back in focus at the latest bank in crisis: massive loads of uninsured deposits. Shares of New York Community Bancorp have dropped about 57% over the past two weeks as losses on commercial real estate loans rattle the industry. Investors are concerned that a plunge in value of empty office space loans issued by NYCB could send depositors with more than the federally protected $250,000 in accounts running for the hills: a classic bank run. That hasn’t happened yet, and there’s no evidence that it will. But the fact that 40% of NYCB’s deposits are uninsured remains a risk for the bank and the sector as a whole. To be sure, the risk isn’t anywhere close to that of the banks that failed last year: About 94% of domestic deposits at Silicon Valley Bank were uninsured and 90% of Signature Bank’s deposits were uninsured, according to the Federal Reserve. Still, after numerous regional bank failures over the past year, the question must be asked: Why would anyone keep uninsured deposits at a bank and why would banks allow them to do so?