Why can't we have a federal deposit style insurance?
Well, first question, why? You have to ask yourself do you really want it? Why not just have caveat emptor?
Second, if you want to force it on customers, since its always the customer who pays, are there any problems with introducing it. At the moment, the answer is yes. If you introduce it now, then you take money out of the banking system, and that makes the credit crunch worse. End result, customers won't get loans, even the ones who might be able to at the moment. If you want such a scheme, you need to introduce it when times are good. You need another quango, and rates available to savers go down.
The ideal system, have a choice of insured or not insured deposits. Insured have a lower rate of interest. Savers can then choose.
I'm surprised you think another quango is a good idea.
Nick
$50bn reserve fund in a country of 300M people crudely translates to £5bn here for our population of 60M. Its not really a lot. Wat, with your knowledge of the banking system, what do you think?
Nick
Fair point.
Actually I'd be quiet happy to have caveat emptor or a higher rate for uninsured deposits. Except for one thing - when dodgy banks with retail customers go bust, politicos can't stop themselves reaching for the taxpayers wallet.
Given that, I'd rather have a compulsory insurance fund for all RETAIL deposits. Sure the customer pays, but that's fair enough - it's the customer getting the insurance cover.
It's a bit like compulsory health insurance in our "social insurance" model. Uninsured punters impose externalities on we softies who can't stand by and watch them die in the gutter.
I feel a separate blog coming on....
PS As for another quango, no I don't like it either. And maybe a private sector operator could potentially do the same thing. But the monoline precedent is not encouraging... remembering we ain't heard the last of that yet...
dreaming-
"$50bn reserve fund in a country of 300M people crudely translates to £5bn here for our population of 60M. Its not really a lot."
You're right - £5bn is not a lot. In fact in current circs it's almost certainly not emough.
And I doubt that FDIC's $50bn will be enough. But part of their model is that they borrow shortfalls (they have Federal backing remember) and then ramp up premia in subsequent years to repay. Just as they did in the early 90s.
IndyMac looks like it's going...
We can see how well the FDIC works.
I'm not sure the NHS analogy holds. If it is blatently clear that deposit X at 5% interest is insured, and deposit Y at 5.5% is not, then caveat emptor applies.
The question of compulsory health insurance in the NHS is buggered. The NHS confuses universal health coverage (a good thing) with the idea that the state must supply the heath care (rubbish). There are plenty of systems with universal health coverage, affordability, and the state not being the monopoly supplier.
The real problem with the monopoly supplier as the state, is that the state can't regulate itself. Hence the 30,000 deaths caused by negligence and accidents in the NHS per year.
Separate regulation from supply of medical services and you get a better quality of health care.
ie. Have compulsory health insurance, with a helping hand for the poor. Have the state regulate the medical profession, and the insurers. So, if people want boob jobs on insurance, they either pay extra for themselves, or convince everyone that it should be part of the insurance cover.
The regulation is easy to make sure that insurers aren't picked off by bad risks, and that the bad risks get cover at the standard costs.
Nick
But the health insurance model works in countries that have a more competent public administration, capable of relating properly but at arms length with the providers. As Ian Watmore said to me at a conference, in answer to a question about the problems of big govt ICT systems, when in the early 1990s we went to competitive procurement, the result was that central govt progressively lost competence in the ICT area. So they couldn't do it properly themselves, and couldn't manage the relationship with contractors. There is a problem at the centre, and it affects many areas of public services.
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