Wednesday, January 13, 2010

FDIC Limits Savings Account Interest Rates

You can only get a higher rate if the FDIC deems the bank "well-capitalized".

The problem is, by discouraging savings, the banks automatically lose capital, which makes them less capitalized. Then, the bank is unable to lend money and become more solvent and viable through the interest charges. Next, the bank loses even more customers through less-than-competitive interest rates and stricter lending standards because it has to save it's remaining capital. Finally, the bank goes bust and the FDIC has to come in and "rescue" things.

'Round and 'round the drain we go...

19 comments:

Ron Mexico said...

Are your retarted...This is an obvious means let the free market run it course and keep the gov't from footing anymore of the bill.

If you are you running an insureace company would you want to allow someone that is a high risk to continue to make you more expose.

The FDIC is only limiting banks "less than well capitalized". (did you read) It seema like a no brainer personally..we have a financial issue in the US, why contiue to allow back to do poor lending practices...

If they would like to give up there FDIC let the pay what ever they want


Maybe if they were better run they would not have to resort to tactic such as this

Phil Chroniger said...

If a bank is "less than well-capitalized", why would you restrict it's ability to attract more capital?

Seems kind of redundant to me to say "well, you can't run a mile as fast as other runners, so you are restricted to jogging a mile...but you still must run it in less than 6 minutes to qualify".

Larry said...
This comment has been removed by the author.
Ron Mexico said...

So then I should let regular olympian runn compete in the special olypics...

What does that have to do with FDIC making a business descion that prevent it from going broke it self.


Did you like the move the ringer

Phil Chroniger said...

No, because a bank competes with other banks, just as an olympian competes with other olympians.

The FDIC wouldn't go broke if the banks were able to make moves to capitalize themselves, because then they would not have to intervene when the bank failed. A policy like this forces the bank into a potentially fatal spiral (in a business sense) that will lead to failure.

Oddly enough, when you made the "olympian in the special olympics" comment, "The Ringer" was the first movie I thought of.

Ron Mexico said...

The what your saying is we need another "FDIC" maybe we will call it RetardFRIC. They can let a poorly run bank put it in financial danger so then the tax payers can give a bail out to the "RFDIC".. or better yet if a bank NEED to go well above the market to compete the then the amount of insurance should be cut for them....

Raising your rate so far beyond the market just to compete is a desperation move... .75% is still a relitivly high number considering most back are less then one now...so that would mean they are able to double what the other banks are offering...

Plus it does not limit what you can loan at....or you can barrow from the fed..The rate is so low they could right low and borrow from the fed for basically nothing.

Phil Chroniger said...

If you are "less than well capitalized", you should be allowed to make moves that would attract capital, thus making you "well capitalized".

If a bank is going to fail, let it fail trying to succeed, instead of being suffocated in a slow death because of some silly threshold set by the FDIC.

Ron Mexico said...

They have the room to attact .75%. This is a reical concept that I have been working on..It could revolutionized the service industry....Customer service

Also, going back to my other point a bank can borrow as well, if it properly manage the borrow funds it would be enoguh to allow them to lend...After all deposit are a liability for a bank..

Or maybe we can lower the reserve limit to help these banks out...

Phil Chroniger said...

All the customer service in the world can't help you out if your product does not compete with everyone else's. Not in the long run.

I mean, you could have a great experience buying a crappy car, and the service people could be great, but in the end...you still drive a crappy car that is in the shop so often you're on a first-name basis (which is also great customer service).

I know you don't spell well, but what in the hell is a "reical concept"?

Ron Mexico said...

You are not selling a crappy car you are combining higher rate ...Not as much as you want becuase you hate the american tax payer and wnat them to keep picking up the tab on Failed back.

So slightly better rate(product) and better custumer service...seems like a strong contender..


Going back to why not borrow?

Ron Mexico said...

"Racial concept"?-->racial concept or maybe radical who knows..I probably still misspelled

Phil Chroniger said...

No, I love the American taxpayer, because I don't believe in bailing out banks that fail.

Ron Mexico said...

So you rather then let the FDIC slow some of the bank that are already and trouble. That way it will be able to do their job. You would prefer to let these bank go unragulate and fail in high numbers. Then the america Taxpayer can do a huge bail out the FDIC..

Then agian We could just uninsure the bank that are out side the guideline or riase there premium. The same way your car company after you went to the bar drank like a sailor, tried to drive home on the sidewalk.

Phil Chroniger said...

It would make sense for the bank's insurance company to treat the banks as insurance companies treat us, wouldn't it?

Ron Mexico said...

I belive that is what I was saying it is Federal Deposit Insurance Corporation

Then again we can treat in like what you want and Insurance company charge everyone the same... and everybody that can't afford it get it for free..

Hey...They can't afford the insurace premium does that mean they don't have to pay. If they don't have to pay does that mean they have more capitalzation.

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