A recent Federal Deposit Insurance Corp. (FDIC) report points to an increase in deposit insurance coverage for certain business accounts as the most likely promising policy response to the nation’s bank failures over the past couple of months.
The California and Nevada Credit Union Leagues are monitoring this topic with respect to any talk of potential parity for credit unions at the National Credit Union Share Insurance Fund (NCUSIF), according to the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010.
In Options for Deposit Insurance Reform, three options are presented to reform the nation’s deposit insurance system. The report first discusses the events of March 2023, and then reviews the history of deposit insurance in the United States. It then discusses the objectives and possible consequences of deposit insurance, and tools that may be used to support the objectives and address possible consequences.
The report examines three options for deposit insurance reform that range in their departure from the status quo: limited coverage, unlimited coverage, and targeted Coverage. The report describes how each option, if pursued, may be considered alongside other tools to maximize its efficacy.
However, “targeted insurance” could pose significant administrative challenges. Some experts say that getting Congress to grant the FDIC the authority before the 2024 election is improbable, according to an article in American Banker.
“The agency asserted it is considering each option carefully, but showed a preference for targeted insurance, citing drawbacks to the alternatives,” the article states. “FDIC officials say maintaining the current system of deposit insurance will not adequately address run risk, and that unlimited deposit insurance introduces too much moral hazard into the economy because it would make banks less careful in their management practices.”