No. of Recommendations: 14
I think all deposits should be insured.
Individuals and corporations do not have enough information to evaluate the safety of placing deposits in a banks. I am a former bank CFO and I still have to make many assumptions to evaluate the safety of a bank to invest in.
The argument that it will increase risk taking by management is false IMO. I have been part of senior management for 3 banks. Risk taking is more a consequence of too many banks and not enough talent to manage them. The aren't 4,000 capable CEO to run these banks. Nor are there enough CEO's to run all of the major companies in the US. Many morons run companies in America! However, of course in a bank mistakes can be lethal. Bank balance sheets can be large and complex. I would guess that SIVB likely lacked a basic transfer pricing system for rates and had inadequate asset liability management. You don't use ST funds to buy LT bonds. It is an obvious mismatch. A train wreck waiting to happen. You also don't grow a bank 20% or more a year without some real headaches. That is why we have regulation and an insurance fund funded by the banking system. However, the regulation team is likely small, and not very sophisticated. They also lack real authority to change management decisions. They provide a CAMEL rating which the board should see, but it is never made public. Therefore, depositors will never get the information that they need. There will always be mistakes and stress will bring those too light. But a few basis points on $16 Trillion dollars will create a very large insurance fund. Currently banks don't pay into the fund for uninsured deposits. However, they likely have to pay up for the deposits because of the perceived risk. So pay a similar rate to the depositor and include these in the insurance calculations for the fund.
