The agency [FDIC] traditionally collected a percentage of the deposits held by each bank, adjusted for the health of the institution. It now further adjusts to reflect the likely cost of a bank's failure, based on its business model.
The latest assessment goes one step further, moving away from the deposit model. Instead, the FDIC will collect 0.05 percent of each bank's assets, the amount of money loaned, invested or otherwise committed to customers. Smaller banks tend to have roughly the same amount of assets and deposits, because they lend to borrowers what they collect from depositors. But larger banks also lend money from other sources, such as borrowed money -- and as a result they now face larger assessments.
To limit the impact, the FDIC charged only the bare minimum required to keep the fund from dwindling to nothing, based on its projections of future bank failures. It backed away from a plan to collect a larger amount now, but officials said a second special assessment was likely at the end of the year.
Saturday, May 23, 2009
Too big to jail
While it's not the first best solution (get rid of federal deposit insurance and bailouts), I think we can call it a second best:
I'm assuming, hoping, that the asset model involves adjusting for the health, i.e. risk, of the assets.