Banks are FDIC insured—meaning taxpayers are ultimately responsible for any business-threatening losses a bank incurs. Since banks receive this generous public subsidy, they should stick to activities that benefit the public—like collecting deposits, lending, managing the nation’s payment system, and other low-risk activities that grease the wheels of capitalism. Therefore, banks should immediately stop engaging in exotic and risky activities—like trading with customer funds—because doing so allows them to rake in profits when their trading strategies work out and to stick taxpayers with the bill when their strategies blow up. The case seems sound, and the logic has a certain linear appeal. Though I would vehemently argue that FDIC insurance is the root of the problem. Eliminate it, and depositors would have to (gasp!) learn about a bank before entrusting it with their money. Reputation would stop banks from making risky or fraudulent investments. Just like your dry cleaner doesn’t need a law to tell him not to loan out your jeans to another customer, banks that want to retain customers would treat your property with respect.
Posted on: Sun, 13 Apr 2014 02:33:55 +0000
Trending Topics
Recently Viewed Topics
© 2015