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There's option 3: The limit is in practice "At least 250k" and the value of "At least" varies depending on the nature of the deposit, the institution it's in,

by hakfoo 4y ago

There's option 3: The limit is in practice "At least 250k" and the value of "At least" varies depending on the nature of the deposit, the institution it's in, and its failure mode. There are no doubt certain banks that would be more palatable politically to backstop further. I could imagine a national bank with mostly retail depositors and few over-250k accounts is "prettier" politically than if you had a tightly focused regional player that had mostly corporate accounts. I could see politicians saying "Why should Iowa bail out the bad decisions of Bay Area investors? Nobody in Dubuque actually has an account there."

hn_throwaway_99 4y ago
> There's option 3: The limit is in practice "At least 250k" and the value of "At least" varies depending on the nature of the deposit, the institution it's in, and its failure mode. Well, option three is basically what we have now, and my argument is that it's supremely fucked up. As you point out, it highlights how vague, unclear laws or backstops are ripe for corruption and political cronyism. It also adds a new form of moral hazard: if you're going to blow up, make sure you blow up big. Some small little bank that is pretty contained? Sorry depositors, you're all screwed. But scream "contagion" enough times and use the "nice economy you got there - be a shame if someone were to ruin it" tactic, and get Washington to come to your rescue.