Counterparty Risk Explained: Why Banks Have It and Physical Gold and Silver Don't

By GSS CoFounder · November 6, 2026 · 11-minute read

Counterparty risk is the chance that the other side of a financial arrangement can't hold up its end. If you have money in a bank, the bank is the other side. If you own a gold or silver coin and it's sitting in your safe, there is no other side.

That one difference is the whole reason stackers talk about physical metal the way they do. This guide covers what counterparty risk is, where it shows up in a normal bank account, what FDIC insurance does and doesn't cover, the newer risk regulators in Europe and Japan are now warning banks about (AI-enabled cyberattacks), and what you give up when you hold metal instead.

What Is Counterparty Risk?

Counterparty risk is the risk that the party on the other side of a deal fails to deliver what they promised. It applies anywhere you are relying on someone else's promise to pay you.

A few everyday examples:

• A bank holding your deposit
• A brokerage holding your shares
• A company that issued you a bond
• A fund that says it holds gold on your behalf

In every one of those, your asset is really a claim on another company. The value of your claim depends on that company staying solvent and honoring it.

Why Money in a Bank Carries Counterparty Risk

When you deposit cash, legally you are lending it to the bank. The balance on your app is a record of what the bank owes you. It is not a pile of your dollars set aside in a vault with your name on it.

Here is how that works in practice:

1. Your deposit is a liability of the bank. In a failure, depositors are creditors of the bank.
2. Banks lend most of it out. Banks use deposits to fund loans and buy securities. They keep only a fraction on hand as cash. The Federal Reserve cut reserve requirements to zero in March 2020, so there is no longer a required minimum.
3. Bank assets can lose value. If loans go bad or bonds drop in price, the bank can end up owing more than it holds.
4. Confidence matters. If enough depositors ask for their money at once, even a healthy-looking bank can't pay everyone on the same day.

None of this means your bank is about to fail. It means that a bank balance is a promise, and promises have a failure rate above zero.

What FDIC Insurance Covers (and What It Doesn't)

FDIC insurance is the main reason most Americans don't worry about this, and it is a real protection. It is also limited.

• Coverage amount: The FDIC insures deposits up to $250,000 per depositor, per insured bank, per ownership category.
• Covered products: Checking, savings, money market deposit accounts, and CDs.
• Not covered: Stocks, bonds, mutual funds, crypto, annuities, and other investment products, even if you bought them through a bank.
• Cost to you: Nothing. Banks pay the premiums.

The $250,000 limit has been in place since 2008. If you have more than that at one bank under one ownership category, the amount over the limit is exposed in a failure. You can raise your coverage by using multiple banks or different ownership categories, such as joint accounts and trusts. The FDIC offers a free calculator called EDIE to check your exact coverage.

In normal times or isolated bank failures, FDIC insurance works as designed: the Deposit Insurance Fund (currently around $161 billion, or about 1.5% of insured deposits as of mid-2026) plus the resolution process covers insured depositors quickly, and the fund is replenished through bank assessments.

A different picture emerges in a true systemic crisis such as multiple large banks failing in a short period because of correlated loan losses, asset-price collapses, or a loss of confidence that triggers widespread runs. The DIF is intentionally sized as a buffer against ordinary failures, not a full backstop for the entire ~$19 trillion deposit system (of which a substantial portion is uninsured). In such a scenario the fund can be exhausted or severely strained.

The FDIC’s insurance is backed by the full faith and credit of the U.S. government, so insured depositors have never lost money. In practice, however, a systemic event would likely require Treasury support, special resolutions, or other emergency measures. Access could be delayed while authorities sort priorities. Uninsured deposits (balances above the $250,000 limit in a given ownership category) have no automatic protection and historically depend on case-by-case decisions—exactly what happened with the systemic-risk exceptions in 2023. Confidence, liquidity, and the speed of government response become critical. This is the core of counterparty risk for bank deposits: your claim is only as good as the bank’s solvency and the broader system’s ability (and willingness) to honor insurance and resolution promises under stress. Physical gold or silver held directly has none of those layers

Real Examples of Bank Failures

Silicon Valley Bank, Signature Bank, and First Republic (2023). SVB failed in March 2023 after a run on deposits, and Signature Bank was closed days later. First Republic followed in May. Regulators invoked a systemic risk exception for SVB and Signature that protected uninsured depositors, but that was a special decision made at the time. It is not a rule you can count on for the next failure.

Cyprus (2013). As part of a rescue package, depositors with balances above the insured limit at the country's largest banks took losses. It is the most cited example of what can happen to uninsured deposits.

The point of these examples is not that your bank will fail. It is that deposits above the limit depend on decisions made by other people in the middle of a crisis.

The Newer Risk: AI-Enabled Cyberattacks on Banks

Bad loans and bank runs are the old way a bank gets into trouble. Regulators are now pointing at a newer one: attackers using advanced AI to find and exploit software weaknesses faster than banks can patch them.

Here is what has been reported so far:

• Europe: In July 2026, the European Central Bank sent a letter to the roughly 110 banks it directly supervises, calling advanced AI a long-term shift in the threat landscape and giving them until October 31, 2026 to submit action plans. The European Systemic Risk Board issued a parallel warning about systemic cyber risk from frontier AI models.
• Japan: The chair of the Japan Bankers Association said in June that lenders could be forced to suspend services such as ATMs and online banking if AI models become a serious threat to the banking system. In August, Japan's financial regulator moved to broaden cybersecurity oversight beyond banks' direct vendors.
• Japan and South Korea: Japan recorded more cybersecurity incidents in the first nine months of 2026 than in all of 2025, and nine South Korean banks were probing attacks that may have involved AI tools, according to an October report.
• Finance as a target: IBM's X-Force report found that a quarter of the attacks it investigated in 2025 targeted Europe, with finance and insurance hit particularly hard.

What This Does and Doesn't Mean for Your Money

A cyberattack on a bank is not the same as a bank failure, and FDIC-insured deposits are still insured up to the limit. The risk regulators describe is mostly about disruption: systems going down, services being suspended, and customers losing access for a while.

It is also worth being clear about what isn't settled. In many of these incidents, investigators are still working out whether AI was actually used. The regulatory warnings are about where the threat is heading, not proof that any one attack was AI-driven.

For anyone whose savings exist only as entries on a bank's systems, though, the point stands. Your access depends on those systems being online and secure. A physical coin in your hand does not.

Why Physical Gold and Silver Have No Counterparty Risk

A physical gold or silver coin is not anyone's liability. Nobody owes you anything. The coin itself is the asset.

• No issuer to default. A one-ounce gold coin doesn't depend on a company staying solvent.
• No promise to honor. Its value comes from the metal, which has been accepted as money and a store of value for thousands of years.
• You hold it directly. If you keep it yourself, no other institution sits between you and your asset.
• No login, no network. A coin or bar doesn't live on a server. It can't be hacked, and an ATM outage or a bank's website going down doesn't affect it.
• It can't be created at will. Governments can create more currency. Mining takes time and money, so the supply of metal grows slowly.

This is the core of the physical gold vs. paper gold distinction. Paper products like gold ETFs, futures, and unallocated accounts are claims on something else. Even a fund that holds real gold still involves a custodian, a trustee, and a sponsor. Physical metal in your possession has none of those layers. For a full breakdown of the two approaches, see our guide to physical bullion vs. gold and silver ETFs.

What You Give Up With Physical Metal

Owning physical metal removes counterparty risk. It does not remove every risk, and it comes with tradeoffs you should know about up front.

• Price volatility. Gold and silver prices go up and down. Silver in particular can swing hard.
• No yield. Metal doesn't pay interest or dividends. A savings account does.
• Premiums and spreads. You pay over spot when you buy and usually get a little under spot when you sell. Shopping around matters, and that is what price comparison is for.
• Storage and security. You are responsible for keeping it safe. A home safe, a safe deposit box, or a private vault each has its own costs and risks. A safe deposit box is also not FDIC insured.
• Insurance. Check whether your homeowners or renters policy covers bullion and at what limit.
• Liquidity. Selling takes a trip to a dealer or a shipping process, not a tap on a screen.
• Buying still involves online security. The metal itself can't be hacked, but your dealer account and payment details can. Use strong passwords and two-factor authentication, and stick to dealers you have vetted.

Because of these tradeoffs, most people who own metal treat it as one part of their savings, not all of it. Our guide on how much gold and silver to own covers allocation in more detail.

Which Physical Products Make Sense

If the goal is to hold metal with no counterparty risk, the products that work best are widely recognized and easy to sell.

• Government-minted coins like American Gold Eagles and American Silver Eagles are easy to price and easy to resell.

• Bars carry lower premiums per ounce, especially in larger sizes, though they can be harder to sell in small amounts.

Compare current prices on a few popular options:

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If you are new to buying, start with How to Buy Gold and then compare dealers on the product you want.

Frequently Asked Questions

This article is for general education and is not financial, tax, or legal advice. Prices and insurance rules change, so verify current details with the FDIC and your insurance provider.