Reforming deposit insurance: The case to replace FDIC protection with self-insurance

Bericht

The Federal Deposit Insurance Corporation (FDIC) currently insures bank deposit balances up to $100,000. According to some observers, statutory protection creates moral hazard problems for insurers because it allows banks to engage in risky activities. As an example, moral hazard was a key contributor to huge losses suffered when thrift institutions failed during the 1980s. This brief by Panos Konstas outlines a plan to reduce the risk of government losses by replacing insured deposits with uninsured deposits and eliminating some of the costs of deposit insurance. His plan proposes a self-insured (SI) depositor system that places an intermediary between the lender (saver) and borrower (bank) in the credit-flow chain. The FDIC would guarantee saver loans and allow the intermediary to borrow at the risk-free interest rate if the intermediary's bank deposit is statutorily defined outside the realm of FDIC insurance. The risk is therefore transferred to depositors (intermediaries); thus creating incentives for depositors to earn a rate of return at least equal to the cost of borrowing plus a risk premium based on the risk profile of banks.

Object Details

• ISBN: 1931493480
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Public Policy Brief ; No. 83

Classification and Topics

• Classification: Wirtschaft
• Subject: Einlagensicherung ; Reform ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Konstas, Panos
• Event: Veröffentlichung
• (who): Levy Economics Institute of Bard College
• (where): Annandale-on-Hudson, NY
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/54267
• Last update: 10.03.2025, 11:42 AM CET