We now have insurance based on risk!!
Posted October 23, 2008on:
Thanks goodness – they have changed the deposit insurance scheme such that the premium depends on risk!!!!
Also they have capped the amount you can insure at $1m – very good.
The one concern left is the wholesale market. With no wholesale insurance available the wholesale market for funds is threatening to dry up. With many other countries doing it we have a problem – because of other nations choice to insurance wholesalers domestic credit for banks could dry up.
However, I would like to point out that there is unlikely to be a “bank run” on wholesalers, and as a result if they were willing to pay market rates for private insurance I’m sure they could get it – as a result in of itself government wholesale insurance is not a good idea. As a result, the only reason for doing it would stem from this “international prisoner’s dilemma” – something the Bank must not see as a sufficient threat.