Policy Documents

Rethinking Which Accounts Qualify For Deposit Insurance

June 18, 2013

The FDIC can streamline its operations and promote a more stable financial sector by correctly identifying which funds should qualify for insurance. Insuring only those deposits identified as being both germane to a bank’s maturity mismatch and deposited by an individual with the motive of having on-demand availability would hold banks accountable for the full costs of offering risky “deposit-like” products, while simultaneously removing the subsidized gains to depositors holding these “deposit-like” accounts. To the extent that brokered deposits appear similar to core deposits, yet lack the same uncertainty-hedging motive, removing them from the list of insurable funds would promote banking-sector stability by strengthening bank balance sheets.