Relying on customers to check their bank, besides being fairly impractical for all but the largest and most sophisticated customers, is just going to trigger bank runs as soon as customers get any whiff of a problem.

I don't see the problem with unlimited FDIC provided the regulations are congruent with that. If you want to go the private route for better interest rates and take on the regulatory burden yourself, you can always go with an uninsured bank. If you just want a simple place to stash a few hundred million, why make you jump through hoops?

What I don't understand is why start-ups were apparently keeping millions of dollars of capital in a bank account rather than government bonds or other instruments, given that the FDIC limit was well known.

The assumption that an operating company should understand fixed income pricing dynamics, have a POV on future FED interest rate moves, and dive into each potential banking partners' asset duration is an interesting one, especially when most of SVB's deposits were made during a period of perpetually falling interest rates, where duration mismatch helped banks.