In New York Times Op-Ed today, contributor Amar Bhide calls for a return to the good old days of the Glass-Steagall. I take issue with Bhide’s following assertion however:

The Federal Deposit Insurance Corporation now covers balances up to a $250,000 limit, but this does nothing to reassure large depositors, whose withdrawals could cause the system to collapse. In fact, an overwhelming proportion of the “quick cash” in the global financial system is uninsured and prone to manic-depressive behavior, swinging unpredictably from thoughtless yield-chasing to extreme risk aversion. Much of this flighty cash finds its way into banks through lightly regulated vehicles like certificates of deposits or repurchase agreements. Money market funds, like banks, are a repository for cash, but are uninsured and largely unexamined.

This argument feels like it is trying to connect two unrelated points. Yes, cheap quick cash is all around in banking, and there is a danger in failure, but the $250K limit problem seems to me a wish to create a problem where none exists currently. No customer has ever lost a cent of FDIC insured funds in 80 years.

What do you think, dear readers?

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