“The FDIC Has a Proven Way to Avoid Moral Hazard”

I authored an opinion article in yesterday’s Wall Street Journal on the FDIC’s decision to cover 100% of SVB and Signature Banks deposits, even for those depositors who were uninsured.

From the article:

The FDIC should have turned to its 1982 innovation: the modified deposit payoff. The idea was that when a bank closed, the FDIC would pay uninsured depositors the full insured amount—today $250,000—and give them receivership certificates for 80% of their uninsured funds, which was the minimum amount large depositors historically recovered from failed bank receiverships. Large depositors could then take that certificate to Federal Reserve banks and exchange it for cash. If the FDIC ultimately collected more than the 80% from the failed bank receivership, it’d pay large depositors those extra funds until they were made whole.

Read the story here.