An investor holds assets at two separate financial institutions that simultaneously enter … — FINRA SIE (Securities Industry Essentials)

An investor holds assets at two separate financial institutions that simultaneously enter liquidation proceedings:

1. At an FDIC-insured commercial bank, the investor maintains an individual checking account with $180,000 in cash and a joint savings account (owned 50/50 with a spouse) containing$ 200,000 in cash.
2. At a SIPC-member broker-dealer, the investor maintains an individual margin account containing $320,000 in equity securities,$ 140,000 in uninvested cash, and $60,000 in physical gold bullion.

Assuming no other accounts are held, what is the maximum total dollar amount of investor protection coverage provided across both financial institution failures?

$740,000Answer
B
$780,000
C
$710,000
D
$640,000

Answer

The maximum total dollar amount of protection coverage available across both institution failures is $740,000.

FDIC insures bank deposits up to

250,000 per depositor for each ownership capacity. The

180,000 individual account is fully covered, and the investor's

100,000 share of the joint account (50% of

200,000) is fully covered under the separate joint ownership category, yielding

280,000 total FDIC coverage. At the broker-dealer, SIPC provides up to

500,000 total protection per customer, including a maximum of

250,000 for cash. The

320,000 in equity securities and

140,000 in cash total

460,000, which is fully covered because cash is below

250,000 and total claim is below

500,000. Gold bullion is a physical commodity and is not protected by SIPC. Combining

280,000 (FDIC) and

460,000 (SIPC) yields a total protected amount of $740,000.

Step-by-Step Solution

Calculate FDIC coverage at the commercial bank by ownership category

Individual account coverage =

180,000; Joint account coverage = 50% of

200,000 =

100,000. Total FDIC protection =

280,000.

FDIC insures deposits up to $250,000 per depositor, per insured bank, separately for each legal ownership category (individual vs. joint).

Determine SIPC-eligible assets at the broker-dealer and apply SIPC coverage caps

Equity securities =

320,000; Cash =

140,000; Gold bullion =

0 (excluded). Total SIPC protection =

460,000.

SIPC protects cash and securities up to

500,000 total (including up to

250,000 for cash claims). Physical commodities such as gold bullion are explicitly excluded from SIPC coverage.

Sum total protection across both institutions

280,000 (FDIC) +

460,000 (SIPC) = $740,000.

FDIC and SIPC are separate statutory protection programs operating independently for bank deposits and brokerage accounts respectively.

Key Concept

SIPC vs. FDIC Protection Limits and Ownership Categories

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