AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (2 comments)

  1. Todd Mason

    Of course, when the shadow banking industry cratered in the housing bust and money funds threatened to break the buck, the Treasury stepped in with a promise of liquidity. The Treasury would have had to do the same to stem runs at banks if the FDIC went away When the problem is asset related, banks fail in droves, as in OK, TX, AZ, MA. 9 of 10 bank holding companies in Tx failed in the ’80s, but without significant runs. Hard to imagine TX operating on a cash basis, eh?

    BTW, Dodd Frank is a first layer of regulation on mortgage lending and borrowers’ rights. The Fifth National was heavily regulated for safety and soundness but if it decided to it didn’t like your interest rate lock any more, tough cookies.i

  2. I have a better idea. Remove limited liability from deposit taking institutions. The insurance only kicks in when the shareholders go bust. If that doesn’t stop moral hazard then I don’t know what will.

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