The default settlement account, Vanguard Federal Money Market Fund, has incredibly low credit risk because its assets are short-term US Federal gov debt and Federal Reserve repurchase agreements. [1] Neither of those entities have substantial default risk. Further, the global financial chaos of significant defaults from either of those entities would likely render FDIC insurance ineffective because too many banks would fail simultaneously due to their assets in those classes.
[1] https://investor.vanguard.com/investment-products/mutual-fun...