While the banks have not yet reached a full-blown panic mode, there is plenty to be worried about with respect to the FDIC.
Over the past year, the FDIC has seized 12 banks, at a cost of $7 billion coming directly from its Deposit Insurance Fund (DIF), which now holds $45 billion in reserve. That may seem like a lot of money, but The DIF currently covers roughly $4.5 trillion in deposits, for a reserve ratio of around 1 percent. This is disturbing, and the ability of the FDIC to cover a large-scale panic should be called into question, not pushed aside.
The FDIC requires member banks to hold at a minimum 10 percent of their total deposits in reserve, to ensure withdrawal demands can be covered. The FDIC does not hold itself to its own standard.
Reserve requirements should be raised to ensure taxpayers are not held responsible for paying claims in the event of a large-scale banking collapse. While the FDIC has recently taken steps in the right direction by raising the premium rates it charges its member banks, real changes are needed to hold banks accountable and protect taxpayers.
Matthew Glans (firstname.lastname@example.org) is a legislative specialist for The Heartland Institute.