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For small accounts, the FDIC premium levied on the institutions is sufficient skin in the game. It goes up during volatile times. I’ve been in meetings worrying
by 1123581321 5y ago
For small accounts, the FDIC premium levied on the institutions is sufficient skin in the game. It goes up during volatile times. I’ve been in meetings worrying about it. The other skin a bank has is making sure its loan and fee business keep up with savings and is sufficiently risk-managed. This pressure regulates the accumulation of large savings accounts.
- eru 5y agoFDIC doesn't charge enough, and doesn't charge not differentiated enough. (No fixed regulation could charge the right amounts. You'd need competing private insurance companies to get a better approximation for that.) Of course, even if the FDIC doesn't charge enough, you'd still have meetings about how to game the system so that your bank pays less. It's still a cost to the business.
- 1123581321 5y agoGood point about the lack of differentiated underwriting. The costs are plenty for small institutions though. Other than perhaps raising money market rates, there aren’t any meaningful gaming levers to pull other than keeping the loan and fee business healthy (right mix of promotions and upsell prompts by tellers.)