• @pingveno
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    1 year ago

    The concern is not for the billionaires. It is for the stability of the banking sector as a whole. We saw this with Lehman Brothers where its collapse triggered a massive worldwide recession. The conditions were already there, of course, but Lehman Brothers was the spark. The hope is to have shareholders be the ones to take a haircut.

    The fear is that if depositors over the $250k official FDIC limit loose confidence, they will pull their deposits from banks. Because banks keep only some of their deposits on hand (fractional reserve banking), this could rapidly cause a banking collapse. That wouldn’t be entirely unfounded. There are quite a few banks that are currently in somewhat precarious situations due to the interest rate changes by the Fed and would not survive a bank run. Guaranteeing deposits above the limit is a relatively cheap way to avoid this doomsday scenario for the banking system. Making it an official policy has been discussed recently, but it would need to be regulated somehow to keep banks from making overly risky bets.