The FDIC Fund has to know how much cash to keep on hand to cover total insured deposits. The minimum is something like 1.35% of all insured deposits if I'm not mistaken, which they have actually been under for a while now. If all deposits are covered 100% the find would have to be dramatically larger, do they just take AL of that from the banks immediately?
Up the rate and ammortize it over the next 20 years. The alternative is to kill the regional banks and concentrate power in the few really huge banks. I’m not much for conspiracy theories, but the problem is so obvious and the solution so simple, it does make one wonder if that’s not intentional.
The fund is already below their minimum requirement though and didn't actually have enough cash to cover SVB insured deposits when it failed. Amortizing over 20 years likely means tax payers will cover it if any more banks fail in the near future
The funny thing is, if you insure everything everywhere then why would anyone pull their money out of a bank to begin with? That ends the bank runs and the deposit flight right there. It probably wouldn’t come to that.
Beyond that, if all money is insured 100% why would banks keep any reserve? And what keeps a check on the risks banks are willing to make?
I'd be happy to see us abandon the fractional reserve system all together, but that means blowing up the system entirely and getting rid of the concept of debt. Short of that, I don't see how we could keep fractional reserve while making deposits completely risk free.
The same thing that keeps them from doing that now. Banks are required by regulation to keep enough liquidity on hand and have restrictions on what kinds of assets they can hold. They don’t do it out of an abundance of common sense anyway.
Regulation doesn't have much teeth when banks are too big to fail and all deposits are insured. Fines related to breeching regulation often come years after the infractions started and never amount to the gains banks wanted in the meantime. In the end regulation amounts to a slap on the wrist and the feds just getting a piece of the pie.
We don't necessarily need those regulations of the money isn't insured though. Banks should be deciding how much to keep on hand based on their own risk profile. If they make a bad bet and lose the bank folds, depositors get priority on asset liquidation, and other banks take note.
The FDIC Fund has to know how much cash to keep on hand to cover total insured deposits. The minimum is something like 1.35% of all insured deposits if I'm not mistaken, which they have actually been under for a while now. If all deposits are covered 100% the find would have to be dramatically larger, do they just take AL of that from the banks immediately?