Tuesday, October 6, 2009

How to give the FDIC some clout

By: Robert Cyran

The Federal Deposit Insurance Corporation needs to add prevention to its stock of cures.

Its bank deposit insurance fund is running low, so it has asked its charges to prepay three years of premiums. Yet 90% of banks paid no assessments from 1996 to 2006 when their profits were healthy. Such pro-cyclival policies punished the prudent and rewarded risky lenders.

The laws governing the fund require the FDIC to keep its kitty at no less that 1.15% of insured deposits, which it does by assessing banks based on their deposits and their regulators' rating of riskiness.

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Posted by: Christina Dove

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