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That seems like a terrible moral hazard for the bank to just go and gamble any deposits
by hackernewds 4y ago
That seems like a terrible moral hazard for the bank to just go and gamble any deposits
- woeirua 4y agoNot really... If the executives make terrible decisions then they'll still drive their institution to receivership which means they'll lose their jobs, and the stockholders will lose everything. Maybe an acceptable compromise would be: if you accept unlimited FDIC insurance at your financial institution you agree to executive compensation clawbacks, and more severe penalties if you mismanage funds (e.g. jail time). In exchange, unlimited FDIC insurance would prevent runs like we saw at SVB. There would be no reason to rush to withdraw if you know that you'll be made whole at the end of the day.