Former Citibank CEO Sandy Weill garnered headlines last week when he said that the megabanks (one of which he created) should be busted up into smaller units. Two WSJ columnists (Zweig and Jenkins) point out that size may not be the real problem -- instead, they argue, we need to take a closer look at deposit insurance.
Currently the FDIC insures deposits up to $250,000. Zweig quotes Rutgers economist Eugene White, who thinks the insurance could be cut back to a limit of $100,000. This would protect the deposits of middle class investors, while forcing those with larger balances to pay more attention to the security of their deposits. Bankers -- of all shapes and sizes -- would be less willing to take risks if they knew they could not count on the FDIC to bail them out with their depositors.
Of course it would be hard, without full disclosure of compensation formulas and balance sheets, to know how risky a bank might be. But maybe such info should be disclosed?
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