Don't Mess With Deposit Insurance


Maintaining faith in the banking system should come first.

Project 2025’s view of deposit insurance is that it interferes with proper market discipline.

What we know so far about the White House plans is that it wants to consolidate several banking and finance regulators, including the FDIC, into a single group, possibly under the Office of the Comptroller of the Currency,

However, the FDIC is a special case. It is funded by levies on banks, not Congressional appropriations, so there are no tax dollars to save. 

Also, its independence is somewhat protected by not coming under the Treasury — as the OCC does — so its boss isn’t a political appointee. 

It’s notable that the FDIC decided to cover all uninsured depositors at SVB and Signature Bank in 2023

There are sensible debates to be had about the moral hazard of too much protection, leaving banks and their clients with too little responsibility for the risks that lenders take. 

But it’s absurd to expect every ordinary family or small business to regularly assess the credit of even a small-town lender, let alone a mega corporate and investment bank. 

Dismantling deposit insurance risks killing trust in the basic function of banking.

Paul J. Davies Bloomberg 25 February 2025

https://www.bloomberg.com/opinion/articles/2025-02-25/elon-musk-and-doge-mess-with-deposit-insurance-at-your-peril

 

FDIC chief warns; 1980s savings and loan; 2008 financial crisis; 2023 regional bank runs

https://englundmacro.blogspot.com/2025/01/fdic-chief-warns-1980s-savings-and-loan.html


The alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”

Lord Mervyn King, former governor of the Bank of England. 

His book is called The End of Alchemy.

https://englundmacro.blogspot.com/2016/06/the-alchemy-is-belief-that-money-kept.html


“Bank stress tests are fun. They are interesting. So is a game of Monopoly. Do not mistake either for reality,”

https://englundmacro.blogspot.com/2024/06/bank-stress-tests-are-fun-they-are.html


Tillbaka till Rolfs länktips 25 Februari 2025

https://englundmacro.blogspot.com/2025/02/rolfs-lanktips-25-februari-2025.html




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