The FDIC proposed one-hundred percent increase in the bank fees it charges member banks is shockingly high especially considering the extreme gyrations the Federal Reserve Board is undertaking to provide Banks with cash so they can lend and be in financially sound shape. It really smells like leaders in the system are doing a Washington two-step here, that is, they get Congress to pass a law increasing deposit protection 150% but during the enactment process say the increase is only going to be in effect for fourteen months, then after the law is enacted they get the Insurance Fund to dramatically increase the premiums on the member banks, now the only thing they have to do is at the end of the fourteen month period say there is now plenty of money in the insurance fund we can make the increased protection permanent. Although it is probably a good idea to make the increased deposit protection to 250K permanent for deposit accounts for small businesses, because it facilitates them to be able to run their businesses, make payroll and the like, and do so with the feeling their money is safe it is foolhardy for increased protection to made permanent for accounts for an individual or groups of individuals because their is no reason they can't spread their assets out to more than one bank keeping less than 100K in each bank so as to reduce the FDIC's liability from a bank failure.



It is understood that the FDIC's deposit insurance fund has and will lose lots of money because of the high rate of bank failures the system is experiencing, but the best way and fairest way to make up for these losses is not to permanently increase the fee that member banks pay to the FDIC which is a percentage fee on the total amount of deposits a bank has paid on a yearly basis. The fairest way to recapitalize this fund and make up for the estimated $40 billion dollars the fund will be losing from 2008 through 2013 is have a special assessment on member banks based on their profits. This will culminate in the big banks which have big Wall Street operations which make big money paying the lions share of this loss which is only fair considering Wall Street caused this mess that the U.S. banks and the U.S. economy are going through. Congress should authorize the FDIC taking this course of action. Factoring in this means by which the FDIC replaces this $40 billion dollars the FDIC then if need be should raise their deposit assessment fee to restore the deposit insurance fund to the statutory 1.15 reserve ratio.



The FDIC plan to modify their method of calculating assessment rates to discourage risky behavior by banks is good. However, one of their initiatives doesn't seem like a good idea from a public policy standpoint even though it may be good from an insurance standpoint and should be scrapped. The FDIC plans to give banks a lower assessment fee for the more uncollateralized debt the bank has. It is understandable from the FDIC standpoint because if a bank collapses they don't have to pay the holders of that uncollateralized debt and the more cash a bank has even if it is from uncollateralized debt the less likely it is to fail. This is a bad idea from a public policy standpoint because it pushes bank managers to burrow money not for a good reason like burrowing money if their is good loan opportunities or other good investment opportunities, burrowing money just to get lower insurance rates alone isn't a good reason, if this change goes through society will probably see banks making bad investments with monies from unsecured debt they wouldn't have made but for this rule change.