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> Backstops have a cost, and infinite backstop subsidizes risk taking activity of deposit taking institutions. To me this makes intuitive sense, but are the on
by JeremyNT 4y ago
> Backstops have a cost, and infinite backstop subsidizes risk taking activity of deposit taking institutions.
To me this makes intuitive sense, but are the only options 250k or infinity?
What's the "magic" behind that $250k number? Is there some reason to expect that this is an optimal number? I feel like maybe it's cargo-culting - it isn't even re-adjusted for inflation is it?
- rtkwe 4y agoAt the time it's probably the level that covers most people's deposits. It's pretty rare for a person to have >250k in pure savings deposits so setting it at that level protects most people lessening the pressure causing bank runs. It doesn't work so well for banks like SVB where a few huge businesses make up a majority of their deposits. 250k probably still covers 90+% of people in the US.