Bank failures are in the news again today and so are questions about the need to insure all bank deposits, not just up to the current limit of $250,000. Maybe we should — but how?
I don’t always like to privatize everything — but this seems like a good one to consider. Let the banking industry self-insure. They can create an insurance fund, with all banks contributing, maybe with a fee based on their risk and size. Then the fund covers losses in failed banks.
But it might not make sense for banks to self insure — at the time a claim would be made, the industry would presumably be at it’s weakest. So instead, maybe insurance companies can offer commercial insurance polices for deposits over $250,000. Any person, corporation or non-profit that holds more cash than that in an account can decide how much risk to accept on their own and how much to insure. They can pick their policy limits, deductibles and other terms. The cost should be pretty reasonable, since the FDIC provides a built in deductible of $250,000 and the historic risk level is normally pretty low.
The government doesn’t insure my house, my car or my life. Why should they insure my money? More importantly, why should they insure the money of corporations with sufficient assets to be holding over $250,000 of cash in a single account? Universal basic insurance of the first $250K for everyone may be a benefit to all of us (although even at that level, I’ll bet most of the benefit goes to the top 10% or less of the population) — extending the insurance further will be nothing but a handout to the rich. If they want it, let them buy it. They have the resources to afford it.
And, BTW, this proposal should need no legislative or regulatory action. It’s a private deal between an insurance company and a corporation. It’s not a banking transaction, or a government transaction, or a securities transaction. It’s simply a new insurance policy.
If you really, really like government asset insurance, I have better proposals than cash in banks. Let’s give everyone $250K insurance for property damage from climate-change induced disasters, or $250K life insurance for death from a mass shooting, or …..