Recently, Congress extended the increased FDIC limits of $250,000 per account through 2013. This got me thinking about the FDIC limits and some of the ways it could intersect in a positive way with the current economic situation.
My suggestion: Have the FDIC insure all accounts, regardless of limit. How could the government afford this? By allowing those customers who wish to insure accounts above $250,000 to pay for it.
Hear me out: A consumer could pay, as an example, 5 basis points per $250,000 beyond the current FDIC limit to receive the extra insurance. So a customer with a 1 million dollar deposit would pay 15 basis points to insure the extra $750,000, if so desired.
In this system, there would be no extra payment for the status quo, the government would end up making more money through those willing (and with the means to) pay. We're already in a situation where the government seems to be implicitly backing the deposits at larger banks (the ones deemed "too big to fail"), so this approach would at least allow the federal government (and, by extension, taxpayers) to offset their insurance costs without burdening the bank - helping consumers get more peace of mind while assisting in stabilizing our banking system!
Banks would be inclined to gain access to these accounts as it would help them increase their lending. Interest rates for "Jumbo CDs" (accounts over $100,000) already tend to be higher, and this would allow the process to essentially pay for itself, with no extra burden on taxpayers.
An unconventional solution? Possibly. But that may be just what our banking system needs.
Thursday, May 21, 2009
A Proposal for the FDIC
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1 comments:
I've got news for you! That is punishing savers -- those of us who are trying to save for retirement and not rely on anyone else for our support are penalized simply by the fact that we might go over the insurance limit.
I think it is a bad idea! What I would have preferred is the FDIC increase in insurance to $250000 without the 4 year limit which would mean the insurance would revert to $100,000.
Where are the controls on the banks that make poor lending decisions? I don't think it is the place of the FDIC to be guaranteeing very large deposits --already we have had the FDIC getting more authority -- i.e. guaranteeing some of the recent big bank bonds -- like Goldman Sachs and Bank of America. The FDIC's scope of authority is spreading far out and small savers are likely to find themselves in trouble is the FDIC winds up insuring too many different pools of assets amd eventually fails.
While I earn a paltry interest rate on my savings, someone with a 6% mortgage gets refinancing down to 4.5% with lots of fees for the banks --- and poor interest rates to the depositors who provided the assets that the bank is lending.
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