4 ms·
That's the idea. One bad management decision doesn't take down all the capital.
by ISL 4y ago
That's the idea. One bad management decision doesn't take down all the capital.
- yibg 4y agoBut in terms of socializing the risk it works out the same. There is no difference between paying a company back $5mm or 20 companies 250k each.
- michaelmrose 4y agoDo you think most entities socialize the cost of their finances by just dividing up millons to billions between infinite banks and customers of this bank are the only ones not doing this? This seems unlikely. What you are proposing would obviously cost more money in practice else it would make no sense for you to propose it. Lets take it another way. Why not limit FDIC insurance such that its harder to stack them and derive more benefit?
- yibg 4y agoSure, if we change the limit of FDIC so it's harder to stack that would make sense. e.g. coverage is per entity not per account. But that's not what people here are suggesting. People are suggesting to divide the funds so that it's all covered. That it was irresponsible of companies NOT to do that and hence they deserve not to get the full deposit amount back. EDIT: yes it'll cost more money to split today. But it's a waste. The extra cost doesn't go to the FDIC or tax payers, it just goes to a middleman. So then why not just raise the FDIC limit? (or change the rules so you can't split it)
- michaelmrose 4y agoYou are oversimplifying their argument. People are suggesting that people use more than one bank or make a service that involves using more than one bank not necessarily infinite banks. It isn't necessary to choose between zero risk and existential risk. You can with only modest effort achieve moderate risk.
- yibg 4y agothe math is still the same though, just different degrees. If we (as tax payers) are ok with insuring 3 accounts (as an example) x 250k each, why are we not ok with insuring 1 account for 750k?
- QuercusMax 4y agoBecause you're spreading the risk of bank failure across many banks, which honestly is probably good for everyone....
- michaelmrose 4y agoSomeone with 3 250k accounts is liable to need a bailout on 1 of 3 costing less money.
- yibg 4y agoYes but now you have 3 times as many accounts that need to be bailed out. Instead of 3 people holding 1 account each at 1 bank with 750k, now I have 3 people holding 250k at 3 banks. Per bank it’s still 750k.