Unlimited deposit insurance is basically just saying that the bank can take as much risk with their deposits as possible!
I think it's understandable that the current depositors from failed banks that are over the FDIC limit feels hurt if they don't get made whole, but this sort of thing cannot continue. Unless the insurance is paid for by the banks themselves, the risk transfer is not fair.
Why would banks take more risk with their deposits? The bank executives, shareholders, and bondholders wouldn't be personally affected by the loss of deposits anyway so I'm not sure they would care either way. If deposits aren't guaranteed, they lose their investment, and if they are, they still lose their investment.
> Unless the insurance is paid for by the banks themselves
It is though. The FDIC insurance fund is funded by premiums paid by banks.
> The FDIC insurance fund is funded by premiums paid by banks.
those premiums were calculated based on the $250k limit.
So the premiums are too low, it must be argued, if the actual limit is higher than $250k. Which means someone took a loss here paying out the insurance on deposits.
Who this "someone" is right now, i am unable to tell. The gov't says it's not the taxpayer. But i have a sneaky feeling that it will eventually be the tax payer.
By law, if the FDIC takes losses to the insurance fund to pay out on uninsured deposits, they have to charge an extra premium to the member banks. So it's still the banks paying for it.
I think it's understandable that the current depositors from failed banks that are over the FDIC limit feels hurt if they don't get made whole, but this sort of thing cannot continue. Unless the insurance is paid for by the banks themselves, the risk transfer is not fair.