failing on the same weekend. They were worried about catalyzing broader uninsured deposit runs.
big to fail” going into the great financial crisis; and we had it with our GSE’s - an implied government backstop for these very large entities without any capital behind it. I fear we’ve got the same thing now with uninsured deposits in the U.S. I’m hoping very much that our administration goes to Congress and asks to give the FDIC authority that it had during the crisis, which was taken away from it, to have temporary unlimited deposit insurance guarantees on transaction accounts. And I think this is really where you’re seeing the stress in the U.S: the regional banks, which we have a lot of in the U.S., more than most other countries. I kind of think that’s a good thing; not everybody agrees. We’ve got the mega banks, the “too big to fail” banks, multi-trillion-dollar banks; then we have the community banks; and then we have the regional banks in between. The mega banks, notwithstanding our best efforts to tell everybody “too big to fail” is over, nobody believes that. Everybody figures that you have your money with them because there’s no way that the government’s going to let them fail. Then you have the small banks, and almost all of their deposits are insured; they have the smaller customers that can deal with the current limits. The regional banks do a lot of business lending, a lot of business transaction accounts and by definition, those accounts almost always go above the insured deposit limits because they’re made for payments – a lot of money going in, a lot of money going out. This is one of the reasons why during the crises we saw stress in this sector, and it was hurting the smaller banks: that money was flowing into the “too big to fail” banks. We instituted a temporary guarantee; I really wish the FDIC had authority to do that again. I really wish the administration would ask Congress to restore that authority. Long-term, let’s just throw in the towel on uninsured, at least certain types of uninsured. It’s not a tenable situation to have one system for the little guy who we’re supposed to protect and then this free pass for the big guys whenever there’s turmoil. We bailed out bond holders, even shareholders during the great financial crisis. At least we didn’t bail out bond holders when these regional banks
And so, these billionaires got their bailouts, and everybody had to hold their nose and do that. But that’s not the way the system is supposed to work; it’s just not. It’s supposed to work that we have defined rules, – and people know it’s $250,000 – they have legal protections. Banks are assessed for that. They pay deposit insurance premiums that are paid into the deposit insurance fund and that flows into the cost of banking. The little guys, now, through their explicit paid-for deposit insurance guarantees, they’re the ones that are disadvantaged because the big guys are getting this free put on the government. I don’t think that’s right either because now there is this expectation that all the uninsured in the U.S. are going to be protected. Our Treasury Secretary has made statements to that effect, and while I have tremendous respect for her and have been a big supporter of hers, I just have to disagree because there’s no legal authority behind that, and there’s no capital behind that. If we have more bank failures - and I fear we’re going to have more bank failures - the yield curve has been inverted for over a year. We have big troubles with commercial real estate. It’s hard for me to imagine that we’re not going to have more bank failures. And when they do, there’s a very distinct chance that some uninsured depositors are going to have to take losses, and then what’s going to happen?
I think we have a very precarious situation now, and implied guarantees are never a good thing. We had it with “too
Long-term, let’s just throw in the towel on uninsured, at least certain types of uninsured.”
14 INTERNATIONAL COLLABORATION
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