Rethinking the FDIC approach to bank rescues

April 02, 2024
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Rethinking the FDIC approach to bank rescues

The FDIC is required by law to sell failed banks to mega banks, which can offer better prices than smaller bidders, leading to increased concentration in the banking system.

The “least cost test” mandates the FDIC to resolve failed banks in a way that minimizes costs to the deposit insurance fund. This could result in a “barbell” banking system with mega banks and small community banks dominating.

Congress could reinstate the FDIC’s emergency authority to guarantee large business transaction accounts to prevent this. Regulators should take action to prevent further concentration in the banking system.

https://www.ft.com/content/e1ce2ba6-89e3-4132-8061-02120cf8165d

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