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The banking failures involving Silicon Valley Bank (SVB) and Signature Bank have put a spotlight on the significance of financial institutions protecting their clients’ assets. Historically, most banks operate with the business model of leveraging and integrating their clients’ assets within their business operations. This is also known as maintaining client assets “on-balance sheet”.
For those impacted by these failures, the Federal Deposit Insurance Corporation (FDIC) served as a vital safety net, ensuring the return of assets up to a certain threshold. In this article, we will delve into the FDIC, its coverage limits, and the reasons why it is essential for the banking industry to have this protection for its clients.
Understanding FDIC: A Safety Net for Depositors
The FDIC is a US-based government corporation that provides insurance for client-deposited assets in the event of a bank failure. As an independent agency of the United States government, FDIC is fully backed by the United States Government. Banks and other centralized financial institutions utilize FDIC to insure clients' deposits of up to $250,000 per depositor
This protection was created in response to the Great Depression and was established through the Banking Act of 1933 under President Franklin D. Roosevelt's administration to restore trust in the American banking system.
Why is FDIC Coverage Essential?
FDIC is crucial for several reasons:
- Protecting Cash Positions: Financial institutions, such as banks, provide FDIC insurance for deposits up to $250,000. Should there be any disturbances impacting the cash on deposit, individuals can rest assured that their money will be reimbursed. However, it is essential to understand that FDIC insurance has limitations as it does not extend to all assets or scenarios, such as losses incurred from cryptocurrency transactions on centralized exchanges. Financial institutions, such as FTX and Celsius, operated with an on-balance sheet operation, leveraging clients' funds for their own business and speculative ventures, and those companies who operated in this manner suffered a loss of their clients’ assets as they were not FDIC insured.
- Encouraging Transparency: Financial institutions must be transparent with their clients regarding FDIC insurance and the security of their assets. This transparency helps maintain trust and confidence in the banking system, ensuring clients feel safe when depositing their funds.
What Can You Do?
At iTrustCapital, we recognize the importance of protecting our client’s assets, as all assets are held Off Balance Sheet on a 1:1 basis. We strictly keep our client's assets separate from our business operating funds and never commingle them. This innovative approach provides our clients with peace of mind and the assurance that their assets are well taken care of.
Click here to learn more about on-balance sheet vs. off-balance sheet practices.
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This article is for information purposes only. It does not constitute investment advice in any way. It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.
iTrustCapital is a cryptocurrency IRA software platform. It is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular cryptocurrency, precious metal, or investment strategy.
Cryptocurrencies are a speculative investment with risk of loss. Precious metals are a speculative investment with risk of loss. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Clients do not receive a choice of custody partner. The self-directed purchase and sale of cryptocurrency through a cryptocurrency IRA have not been endorsed by the IRS or any regulatory agency. Historical performance is no guarantee of future results.
Some taxes and conditions may apply depending on the type of IRA account. Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Consult a qualified legal, investment, or tax professional.
iTrustCapital makes no representation or warranty as to the accuracy or completeness of this information and shall not have any liability for any representations (expressed or implied) or omissions from the information contained herein. iTrustCapital disclaims any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this information, which is provided as is, without warranties.
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