The FDIC proposed three options for changes to deposit insurance.
These include raising the limit to a higher figure, eliminating the cap completely, or increasing insurance coverage only for banks’ business accounts used to pay workers. All of these potential changes would require congressional approval. FDIC chairman martin Gruenberg acknowledges that expanding deposit insurance might lead to “moral hazard by providing an incentive for banks to take on greater risk,” but believes this could be addressed through strong regulation and supervision.
Expanding deposit insurance for business accounts is thought to have the most potential in meeting objectives and minimizing costs. First Republic became the second largest us bank failure after it was seized by the FDIC and sold to JPMorgan chase. This follows a crisis of confidence in midsize banks that saw depositors withdraw funds due to high rates of uninsured deposits.
