A Cato Institute Financial Regulation Proposal Progressives Could Get Behind

A blog about business and economics.
May 16 2012 4:04 PM

A Cato Institute Financial Regulation Proposal Progressives Could Get Behind

Here's an interesting idea from Cato's Mark Calabria, impose de facto curbs on bank size by curtailing access to FDIC deposit insurance.

He wants to do this in two different ways. One is by simply reducing the current $250,000 cap on insurable deposits and eliminating the loophole whereby a person can have multiple different insured accounts. The second is to limit the total quantity of insured deposits any bank can hold to 5 percent of the FDIC's total deposit insurance fund. Once a bank reaches that cap, it can continue to take deposits but they'd have to be uninsured. That ought to create a financial disincentive toward becoming very large, and especially make it difficult to combine extremely large size with large-scale risk-taking.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.