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Difficulty: EasySIPC vs. FDIC Protection and Coverage Limits

An investor maintains cash balances at both an FDIC-insured commercial bank and a SIPC-member broker-dealer. If both financial institutions were to fail, which statement accurately compares the maximum protection limit for cash claims under SIPC to the deposit coverage provided by the FDIC?

  1. SIPC covers cash claims up to 250,000perseparatecustomer,matchingtheFDICcoveragelimitof250,000 per separate customer, matching the FDIC coverage limit of 250,000 per depositor per bank.Answer
  2. B
    SIPC covers cash claims up to 500,000,whereastheFDIClimitscashdepositcoverageto500,000, whereas the FDIC limits cash deposit coverage to 250,000 per depositor.
  3. C
    SIPC covers investment market losses up to 500,000,whereastheFDICcoverscashdepositsupto500,000, whereas the FDIC covers cash deposits up to 250,000.
  4. D
    SIPC provides unlimited protection for cash claims, whereas the FDIC caps deposit coverage at $250,000.

Answer

SIPC covers cash claims up to 250,000perseparatecustomer,matchingtheFDICcoveragelimitof250,000 per separate customer, matching the FDIC coverage limit of 250,000 per depositor per bank.
SIPC provides protection against broker-dealer failure up to 500,000perseparatecustomer,butcashclaimsarecappedatamaximumof500,000 per separate customer, but cash claims are capped at a maximum of 250,000. FDIC insurance provides up to 250,000perdepositorperinsuredbankfordepositaccounts.Thus,bothcoverageframeworkscapcashprotectionat250,000 per depositor per insured bank for deposit accounts. Thus, both coverage frameworks cap cash protection at 250,000.

Step-by-Step Solution

1
Determine the cash protection limit under SIPC.
SIPC protection offers up to 500,000intotalcoverageperseparatecustomer,butcashclaimsarelimitedtoamaximumof500,000 in total coverage per separate customer, but cash claims are limited to a maximum of 250,000.
SIPC rules establish a $250,000 cash sub-limit to restrict cash coverage in brokerage accounts.
2
Determine the deposit coverage limit under FDIC.
FDIC insurance protects deposit balances up to $250,000 per depositor, per insured bank.
Federal banking regulations set the standard deposit insurance coverage at $250,000.
3
Compare the two limits.
Both SIPC (for cash claims) and FDIC (for bank deposits) cap maximum cash protection at $250,000.
Comparing both caps confirms that maximum cash protection under SIPC is identical to standard FDIC insurance coverage.

Key Concept

Comparison of SIPC cash sub-limits and FDIC deposit insurance limits
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Topics

SIPC vs. FDIC Protection and Coverage Limits

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