Sheila Bair’s Modest Proposal

January 14th, 2010at 11:23am Posted by Eli

This sounds pretty reasonable to me. Elegant, even.

Tension behind the scenes spilled into a nasty exchange of words at a public meeting of the five-member Federal Deposit Insurance Corp. board of directors. The long and short of it: FDIC Chairman Sheila Bair and two other board directors support proposing a new policy that would tie the fees banks pay for deposit insurance to the risk-profile of the compensation plans at those banks. In other words, if the bank pays executives in a way that the FDIC feels encourages dangerously risky behavior that could ultimately lead the bank to fail, then the FDIC can charge them more for deposit insurance.

(…)

Ms. Bair: ….We must rely on academic research and other work done by our own staff to determine whether there is cause and effect here. We are asking the question right now but we are obliged to have risk adjusted premiums. And we are obliged to evaluate risk to the deposit insurance fund, and we are obliged to try to factor in those risk elements into our premium structure.

Well, why not?  Insurance for individuals (car, health, life) has premiums that are pegged to risk levels, so why shouldn’t insurance for banks?

Entry Filed under: Economy


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