Learn what happens if FDIC goes broke and how you can protect yourself with precious metals.

The Federal Deposit Insurance Corporation (FDIC) is charged with maintaining the health and integrity of the U.S. financial system. However, this organization — just like any — is fallible. So, what happens if FDIC goes broke? Well, it could cripple the U.S. financial system. Fortunately, there are ways that you can prepare for this worst-case scenario.

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About the FDIC

The Federal Deposit Insurance Corp is an independent agency that was created by Congress to “maintain stability and public confidence in the nation’s financial system.” The agency’s main responsibility is to protect consumers’ deposits in banks across the U.S.

You’ve most likely heard of the FDIC when listening to commercials from financial institutions claiming that they are “Member FDIC” or “FDIC Insured.” When you deposit money with an FDIC insured bank it means that you can expect to receive up to $250,000 in FDIC insurance if that bank goes out of business. The FDIC is also responsible for creating a plan to care of that bank’s assets.

You can think of the FDIC like a team of firefighters, rushing to put out small fires so that they don’t grow into massive fires.

Preventing bank runs

A key goal of the FDIC is to prevent bank runs. This scenario is when a bank’s customers panic and rush to withdraw more money than the bank has. When this happens, the bank has to shut down.

Bank runs are exceedingly dangerous because they can spiral out of control very quickly. One bank failure does not pose a major risk to the U.S. financial system. But, just one bank failing can spook customers at other banks and cause them to also pull out their money which then means even more bank failures and panic.

Just like taming a fire, the FDIC helps make sure that bank runs do not spiral out of control. If a bank runs out of cash, the FDIC steps in to:

Repay customers.
Resolve any issues and keep the issue isolated.
Maintain trust in the system.

Once they’ve received their cash from the FDIC, customers are free to go find another FDIC insured bank.

The FDIC system sounds foolproof on paper and has worked successfully for decades. But there’s one potential issue. What happens if the FDIC runs out of money?

What if the FDIC went broke?

Thinking about a quasi-government agency running out of money may sound unlikely. But what if several major U.S. banks go out of business at the same time?

According to recent financial releases, the FDIC has total assets of $156 billion on its balance sheet as of Q2 2024. It also has access to a line of credit from the U.S. Treasury for $100 billion. During the same period, commercial banks in the United States had approximately $17.6 trillion in deposits. This means that the FDIC still only has enough capital to cover roughly 2% of all deposits, even including its $100 billion line of credit with the treasury.

On paper, the FDIC would be completely overwhelmed if all (or even several) major U.S. banks were to go out of business at the same time. There are two other factors to consider:

Bank failures are rare under normal economic circumstances: Only one bank has failed so far through 2024, and only five banks failed in 2023. But some years can be much more turbulent than others, like when 25 banks failed in 2008 during the beginning of the Great Recession.
The FDIC can access more cash if necessary: The FDIC is backed by the “full faith and credit” of the U.S. government. This means that it can borrow a theoretically unlimited amount of money directly from Uncle Sam whenever it runs out of money. For example, Congress increased the FDIC’s borrowing limit with the Treasury to $500 billion during the Great Recession.

The FDIC currently has roughly $77 billion in cash and cash equivalents that it can use to immediately address any bank failures, and it can access more if needed.

Securing bank failures

The FDIC has always acted quickly during periods of financial crisis to sure up trust and stability in the banking system. Three examples include:

Silicon Valley Bank: In March 2023, the technology-centric Silicon Valley Bank collapsed in a matter of days. This bank closing marked the second largest bank failure in U.S. history after Washington Mutual’s in 2008. In this scenario, the FDIC made all depositors whole again.
Signature Bank: This bank failure happened on March 12, 2023, and became the third-largest bank failure in U.S. history. The FDIC became the receiver, and regulators granted an exception to cover deposits above $250,000. The FDIC also worked with the acquiring bank, Flagstar Bank, N.A. to handle the transition.
2008 Financial Crisis: Another example of the FDIC securing the financial system was in 2007, when losses on mortgage-related financial assets began to cause strains in global financial markets. The FDIC played a major role in ensuring that the entire system did not collapse during the collapse of the housing market.

With all that said, it’s also worth pointing out that just because the FDIC hasn’t gone broke yet doesn’t mean that it won’t go broke in the future. We’ve already seen that bank deposits far outsize the FDIC’s balance sheet. If there were a true nationwide bank run then the FDIC may not be able to protect the financial system. Financial collapses are fairly common in economics around the world.

If this worst-case scenario were to play out, then what’s the best way to protect yourself?

How to protect yourself against the FDIC failing

Everyone hopes that the FDIC never goes broke and that the U.S. financial system remains strong. But – as the saying goes – it’s best to hope for the best and plan for the worst.

Consider what might happen if the FDIC were to run out of money. In this scenario, there would almost certainly be a widespread bank run. People would rush to withdraw their money only to discover that their money wasn’t in the bank.

You wouldn’t be able to log into your banking app because the bank is out of business. Even if you showed up at a physical bank, there’s a chance that their vaults would be empty. Normally, the FDIC would pay you back for your insured deposits. But this won’t happen if they’ve run out of money.

A scenario like this is similar to your home burning down. If this happened, you’d likely wish you had purchased home insurance before the fire. And if the FDIC went broke, you’d wish you had purchased some type of insurance before the financial system started to collapse.

One way to protect yourself against the failure of the FDIC is by purchasing precious metals. In fact, many investors often view gold and other metals as a type of insurance policy.

Before discussing precious metals, here’s why buying other assets won’t protect you from the FDIC’s collapse.

Which assets will not protect your wealth?

The types of assets that won’t protect you from a failed bank include:

Checking and savings accounts

In the event that the FDIC collapsed, you likely wouldn’t be able to withdraw or even transfer money from your checking account because the bank simply doesn’t have it. The same goes for your savings account – you can kiss them all goodbye!

Even if you show up at your bank and demand the cash from your bank accounts, you may still be unable to get it. Additionally, don’t count on the FDIC repaying you if they don’t have enough funds to cover the failed bank’s deposits.

Equities

The U.S. stock market would likely drop in value quickly. During the 2020 COVID Crisis, the S&P 500 dropped roughly 30% in a matter of weeks. An FDIC failure could induce an even larger market selloff.

Plus, even if you sold your holdings and transferred them to your bank account, you still wouldn’t be able to withdraw the cash.

Real estate holdings

Your real estate holdings may retain their value if the FDIC goes broke. But you can’t sell these assets and convert them into cash very quickly. Owning a home is great for building equity but not for raising cash quickly.

Cryptocurrencies

Cryptocurrency prices are known for being even more volatile than the stock market, which means they could fall even faster in price if the system were collapsing. Additionally, no current cryptocurrency company is an FDIC-insured institution, meaning that you’re out of luck if your provider closes down.

Which assets will protect your wealth?

Investors consider precious metals like gold, silver, and platinum to be a sort of insurance policy for their money. You can sell precious metals and convert them into any currency in the world. So, if your bank went out of business, then you could still sell physical gold or silver and convert it into cash.

Precious metals are known for retaining their value during periods of economic uncertainty or crisis. For example, while stocks dropped 30% during the COVID-19 crisis of 2020, the price of gold barely budged from $1,900/oz at the start of the year to $1,800 by the end.

The price of gold often reflects investor sentiment about the market. In 2024, gold prices per ounce increased from $2000/oz to over $2,600/oz. Current projections for the metal are also rosy, with experts at Goldman Sachs predicting that gold’s price will keep climbing:

“Goldman Sachs Research forecasts the price will reach $2,700 by early next year, buoyed by interest rate cuts by the Federal Reserve and gold purchases by emerging market central banks. The metal could get an additional boost if the US imposes new financial sanctions or if concerns mount about the US debt burden.”

Just like home insurance, you can’t try to buy it when your house is already burning down. The time to buy is before you need it. The same thinking applies to precious metals – buy it before the FDIC collapses. Not during.

Why investors choose Swiss America for gold

We’ve helped thousands of investors protect their wealth with gold and other precious metals. Our customers choose to work with us because of our strong reputation, educational resources, and helpful team members.

You can learn more about precious metal investing with one of our in-depth guides, our podcast or regular gold market updates.

What happens when a bank fails final thoughts

Bank or even credit union failures do happen. One of the ways that you can protect yourself is to hold some of your wealth in precious metals. Connect with the Swiss America team today to learn how you can protect and secure your future.