Dallas Fed President discusses deposit insurance reforms

At a conference co-hosted by the Dallas Fed and Atlanta Fed in July entitled, “Exploring Conventional Bank Funding Regimes in an Unconventional World,” Dallas Fed President Lorie Logan focused her opening address on deposit insurance reforms.

“My starting principle is that deposit insurance policies, like all banking policies, should support a level playing field and fair competition among banks,” Logan said. “While large depositors could theoretically provide helpful market discipline, they also often perceive — rightly or wrongly — that some banks are too big to fail and that the government will bail out those banks or their depositors in a crisis.”

Logan said one way to help restore balance for community and regional banks would be to increase deposit insurance limits on business accounts, which have yet to be updated since 2008.

“If the limit had increased since then in line with nominal gross domestic product, it would be nearly half a million dollars today,” Logan said. “The need to provide insurance after the fact to depositors who weren’t supposed to receive it and whose banks had not been regulated as systemically important suggests the insurance limit was too low in the first place.”