As a moderate Republican woman from Kansas who happens to be an expert on our banking system, Sheila Bair is pretty much a category of one. And while this hasn’t necessarily won her an abundance of popularity contests, it very much makes her worth listening to.
Especially now, when questions are swirling about the safety of banks—in particular, how they are regulated and what role should be played by the Federal Deposit Insurance Corp. (FDIC), which Bair chaired in those oh-so momentous years between 2006 and 2011.
“Uninsured deposits are not stable, they run,” she says. “We saw this during the Great Financial Crisis. We’re seeing it today. There are tools that can be used to manage that, [such as to] provide a temporary backstop on transaction accounts [ones businesses use for payroll and expenses],” which were implemented from 2008 through 2012.
Now, Bair says, “I think there’s a case for providing a permanent guarantee [for business accounts]. They do that in Japan. The requirement is zero interest [paid on deposits], because you don’t want that unlimited guarantee being gained for just high yield. I certainly would not provide deposit insurance guaranteeing all deposits—that could result in a lot of distortions and moral hazard.”
Bair’s second idea is to make regional banks take on debt to protect depositors.
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